Economics of Financial Markets II

ECON 542, Lecture B1

Instructor Dr. Valentina Galvani Winter 2022

Rm. 7-27 Tory
Office Phone: 492-1477
e-mail: vgalvani@ualberta.ca

Lectures Monday and Wednesday, 1:30-2:30 pm, Room. HC 2-17. Between

January 5 and January 23, lectures will be held on Zoom, and will be
recorded. The link to the zoom lectures will be posted on e-class.

Office Hours Friday 1-2 pm, or by appointment.

Textbook None. Lecture notes are on e-class.

Note: Because I’ll record zoom lectures, please read the following disclaimer: “Please
note that class times for this course will be recorded. Recordings of this course will be
used to allow students enrolled in the course to review the material and will be disclosed
to other students enrolled in this section of the class. Students have the right to not
participate in the recording and are advised to turn off their cameras and audio prior to
recording; they can still participate through text-based chat. It is recommended that
students remove all identifiable and personal belongings from the space in which they
will be participating.”
Recordings will be available until the end of term, and accessible on eclass. Please direct
any questions about this collection to the professor of this course Valentina Galvani.

Course Objective
Nearly everything we will talk about in this course is based on the fundamental valuation
equation p=E[mx]. The equation simply says that the price of an asset (p) is the expected
discounted (by m) value of its future cash flow (x). We will refer to a utility-based
interpretation of m. Asset pricing models tell us what the Stochastic Discount Factor
(SDF) m looks like. We will review Markowitz’s mean-variance portfolio selection
theory and the associated asset performance measures which we will cast in the SDF
framework. Immediately after, we will investigate “traditional” factor pricing models and
show how they fit in the SDF paradigm. A very brief digression on empirical testing will
complement our discussion on factor pricing models. We will review the Capital Asset
Pricing Model (CAPM), and its conditional version, the CCAPM. We will refer to a
utility-based SDF to better our understanding of the strengths and limitations of these
models.

Course Material
This course makes extensive use of e-class. The following course material will be posted
on the e-class course site: past exams, marks, research papers, and lecture notes. I will
use your ualberta.ca e-mail address to send out announcements.

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Grades
There are two mid-term exams and a final exam, plus two assignments. The final exam
will be cumulative. The breakdown of the scores is shown below, together with the
tentative dates for the exams. Midterm exams will take place during the usual lecture
time, in the usual classroom.
Assignment 1 10% Due on Friday February 4 (anytime)
Assignment 2 10% Due on Friday April 1 (anytime)

Mid-term Exam I 25% Wednesday February 16 at 1:30 pm

Mid-term Exam II 25% Wednesday March 16 at 1:30 pm
Final Exam 30% Date: Friday April 22 at 9 am
(double-check on Bear Tracks)
Note 1. Unless otherwise directed, the exams are in-person during class time, in the usual
classroom.

Note 2. The empirical part of the assignments has to be done using SAS. A free student
license can be found at a couple of websites. For example,
https://www.sas.com/en_us/software/university-edition.html

Note 3: Late assignments: I will mark late assignments but you will receive only 50% of
the points you score.

Note 4. If a student misses both mid-term exams, then the student is required to write a
make-up (second) midterm exam at a time set by the instructor. The final will count for
55% of the course grade, and it will contain questions covering the material tested in the
first midterm exam (an additional hour will be allowed to complete the longer final
exam). If the student does not write the assigned make-up exam at the prescribed time, a
raw score of zero will be assigned for all missed exams (refer to Calendar, §23.5.6, Point
1). A student who has missed a final exam because of incapacitating illness, severe
domestic affliction or other compelling reason (including religious conviction) may apply
for a deferred exam. Deferred Examination Return forms are to be submitted to the
Undergraduate Student Services Office. A deferred final exam will not be approved if a
student, excluding the final exam, has completed less than half of the assigned work
(Calendar, §23.5.6, Point 2). For this course the deferred final exam, should one be
required, is on May 2, 2022, at 10 am. The exam will be written in the Economics
Department offices; report to Rm. 8-14, Tory.

Exam Deferrals, see the info on e-class, document “I missed my Exam now what”

Accommodating Access
Accessibility Resources (formerly Student Accessibility Services): If you have a
condition that may require some classroom or exam modifications, please contact
Accessibility Resources to obtain a determination as to what accommodations should be
made.

MORE INFORMATION

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 “Policy about course outlines can be found in the Evaluation Procedures and Grading
System section of the University Calendar.”
 “The University of Alberta is committed to the highest standards of academic
integrity and honesty. Students are expected to be familiar with these standards
regarding academic honesty and to uphold the policies of the University in this
respect. Students are particularly urged to familiarize themselves with the provisions
of the Code of Student Behaviour (online at www.governance.ualberta.ca) and avoid
any behavior which could potentially result in suspicions of cheating, plagiarism,
misrepresentation of facts and/or participation in an offense. Academic dishonesty is
a serious offense and can result in suspension or expulsion from the University.”
 “Audio or video recording, digital or otherwise, of lectures, labs, seminars or any
other teaching environment by students is allowed only with the prior written consent
of the instructor or as part of an approved accommodation plan. Student or instructor
content, digital or otherwise, created and/or used within the context of the course is to
be used solely for personal study, and is not to be used or distributed for any other
purpose without prior written consent from the content author(s).”
The Academic Success Centre (Learning Resources) (2nd Floor SUB) offers a variety
of workshops in learning effective study and exam strategies for university. There are
sessions available both in person and on-line for a modest fee. See
http://www.uofaweb.ualbertaca/academicsupport/

The Centre for Writers (1-42 Assiniboia Hall) offers free one-on-one writing coaching
to any student or staff member. Students can request a consultation for a writing project
at any stage of development. They can even discuss completed and graded work.

Learning and working environment

The Faculty of Arts is committed to ensuring that all students, faculty and staff are able to
work and study in an environment that is safe and free from discrimination and
harassment. It does not tolerate behavior that undermines that environment. The
department urges anyone who feels that this policy is being violated to: • Discuss the
matter with the person whose behaviour is causing concern; or • If that discussion is
unsatisfactory, or there is concern that direct discussion is inappropriate or threatening,
discuss it with the Associate Chair (Graduates) or the Chair of the Department. For
additional advice or assistance regarding this policy, you may contact the student
ombudservice: (http://www.ombudservice.ualberta.ca/). Information about the University
of Alberta Discrimination and Harassment Policy and Procedures is described in
UAPPOL at
https://policiesonline.ualberta.ca/PoliciesProcedures/Pages/DispPol.aspx?PID=110

Disclaimer: Any typographical errors in this syllabus are subject to change and will be
announced in class and posted on eClass. The date of the final examination is set by the
Registrar and takes precedence over the final examination date reported in this syllabus.