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Kamis, 17 Februari 2011


Financial economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment" [1]. It is additionally characterised by its "concentration on monetary activities", in which "money of one type or another is likely to appear on both sides of a trade" [2]. The questions within financial economics are typically framed in terms of "time, uncertainty, options and information" [3].
• Time: money now is traded for money in the future.
• Uncertainty (or risk): The amount of money to be transferred in the future is uncertain.
• options: one party to the transaction can make a decision at a later time that will affect subsequent transfers of money.
• Information: knowledge of the future can reduce, or possibly eliminate, the uncertainty associated with future monetary value (FMV).
The subject is usually taught at a postgraduate level; see Master of Financial Economics.
• 1 Subject matter
• 2 Models in Financial economics
• 3 Important concepts
• 4 See also
• 5 External links and references

[edit] Subject matter
Financial economics is the branch of economics studying the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance.
It studies:
• Valuation - Determination of the fair value of an asset
o How risky is the asset? (identification of the asset appropriate discount rate)
o What cash flows will it produce? (discounting of relevant cash flows)
o How does the market price compare to similar assets? (relative valuation)
o Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation)
• Financial markets and instruments
o Commodities - topics
o Stocks - topics
o Bonds - topics
o Money market instruments- topics
o Derivatives - topics
• Financial institutions and regulation
Financial Econometrics is the branch of Financial Economics that uses econometric techniques to parameterise the relationships.
[edit] Models in Financial economics
Financial economics is primarily concerned with building models to derive testable or policy implications from acceptable assumptions. Some fundamental ideas in financial economics are portfolio theory, the Capital Asset Pricing Model. Portfolio theory studies how investors should balance risk and return when investing in many assets or securities. The Capital Asset Pricing Model describes how markets should set the prices of assets in relation to how risky they are. The Modigliani-Miller Theorem describes conditions under which corporate financing decisions are irrelevant for value, and acts as a benchmark for evaluating the effects of factors outside the model that do affect value.
A common assumption is that financial decision makers act rationally (see Homo economicus; efficient market hypothesis). However, recently, researchers in experimental economics and experimental finance have challenged this assumption empirically. They are also challenged - theoretically - by behavioral finance, a discipline primarily concerned with the limits to rationality of economic agents.
Other common assumptions include market prices following a random walk, or asset returns being normally distributed. Empirical evidence suggests that these assumptions may not hold, and in practice, traders and analysts, and particularly risk managers, frequently modify the "standard models".
While in economics models are mainly employed to judge social welfare, financial economists are more concerned with empirical predictions.
[edit] Important concepts
• Risk-free interest rate
• Time value of money
• Fisher separation theorem
• Modigliani-Miller theorem
• Arbitrage
• Rational pricing
• Efficient market theory
• Modern portfolio theory
• Yield curve
• Expected utility hypothesis
• Arrow-Debreu model
[edit] See also
• Finance
• Value investing
• Financial mathematics
• Financial engineering
• Financialization
• Mathematical economics
• Model (economics)
• Experimental economics
• Experimental finance
• Behavioral finance
• Bank of Sweden Prize in Economic Sciences
• Financial crisis of 2007–2009
• lists
o List of Economics Topics
o List of Finance Topics
o List of Economists
[edit] External links and references
• Foundations of Finance, Theory of Finance, Eugene Fama, University of Chicago Graduate School of Business
• Macro-Investment Analysis, Professor William Sharpe, Stanford Graduate School of Business
• Lecture Notes in Financial Economics, Antonio Mele, London School of Economics
• Great Moments in Financial Economics I, II, III; IVa; IVb. Prof. Mark Rubinstein, Haas School of Business
• Microfoundations of Financial Economics Prof. André Farber Solvay Business School
• Handbook of the Economics of Finance, G.M. Constantinides, M. Harris, R. M. Stulz
• Financial economics, International Encyclopedia of the Social & Behavioral Sciences, Oxford: Elsevier. 2001.
• Financial economics topics, The New Palgrave Dictionary of Economics
• An introduction to investment theory, Prof. William Goetzmann, Yale School of Management
Context and history
• Finance Theory, The History of Economic Thought Website, The New School
• The Scientific Evolution of Finance Prof. Don Chance, Prof. Pamela Peterson
• Great Ideas in Finance,
• A Short History of Investment Forecasting, Professor Michael Phillips, California State University, Northridge
• Pioneers of Finance, Prof. Larry Guin, Murray State University
• How Modern is Modern Portfolio Theory?, Peter L. Bernstein
Links and portals
• Financial Economics Links on WebEc
• Financial Economics Links on inomics
• Financial Economics Links on RFE
• SSRN Financial Economics Networ
n economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis.
Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.
Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy.
In finance, financial markets facilitate –
• The raising of capital (in the capital markets);
• The transfer of risk (in the derivatives markets);
• International trade (in the currency markets)
– and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends.
• 1 Definition
• 2 Types of financial markets
• 3 Raising capital
o 3.1 Lenders
 3.1.1 Individuals
 3.1.2 Companies
o 3.2 Borrowers
• 4 Derivative products
• 5 Currency markets
• 6 Analysis of financial markets
• 7 Financial markets in popular culture
• 8 See also
• 9 Notes
• 10 References
• 11 External links