ISSUES IN CAPITAL MARKET ECONOMICS
ECON
400
ISSUES IN CAPITAL MARKET ECONOMICS
Related Websites:
Federal
Reserve System Article Search Engine /
FRB of New York / FRB of St.
Louis / Economic-Financial
Data / Fairmodel / CBOE / CBOT / CME
/
Index of SEC
Rules / Ray
Fair Stock Valuation
Simulation Site (including link to Robert Shiller Finance
Site)
Dr. Brian Goff
GH 404/745-3855
Office Hours for Fall 2004:
(appointments & drop-ins welcome other times)
Objective
To acquaint students with several current issues in the microstructure
and regulation of equity, debt, and commodity markets and their
interactions
with macroeconomic and political events.
Resources
Wall
Street Journal (online registration at link; everyone
must subscribe;
individuals in same household may share subscription)
Selected Readings On-Line
Grading
Daily Quizzes
= 25%
Written Assignments = 25%
WSJ Folder-Oral
= 25%
Final Exam
= 25%
Total
= 100%
(A=90-100; B= 80-89; C= 70-79; D = 60-69; F < 60)
Daily Quizzes:
Each class period the assignned reading(s) and background terms will be
quizzed.
Written Assignments: You will have 3 written assignments that will range from 2 to 3 pages in length. Specific instructions will be provided for each assignment. Also, when a written assignment is due, you should be able to present the main points you have written clearly.
WSJ & Oral: We will devote part of Thursdays to
discussing from the Wall Street
Journal. Article subjects are noted below. Each week,
you should read the journal for articles related to our topics and to
keep track of movements in stock and futures markets. As a
specific assignment most weeks, you
will find an appropriate article before each of these classes,
highlight or underline key statements in the article, and be
able to answer a few questions about the article audibly, clearly, and
correctly. I will mark a grade of check (2 pts),
check-minus (1
pt), or X (0
pts). I will also keep track of the quality and quantiy of your
oral contributions to class. Your Folder grade may be adjusted up
or down by 3%.
Final Exam: These will be a short answer test covering main items
of discussion in the class. Students with disabilities who
require accomodations (academic adjustments and/or auxilary aids or
services) for this course must contact the Office of Student Disability
Services in DUC A-200.
s
Week 3 (Sep 10):
Microstructure in Futures
& Derivative Markets
Tuesday:
What functions do futures and options on financial instruments
play? What is a stock index future? What is stock index
arbitrage? CME
(also subtitles about & contract specs)
Background Terms: Arbitrage; Open-outcry markets;
Hedge (hedging); Law of
One Price
Thursday: What are stock
options? What
are stock index options? What are market making issues and costs
for options? CBOE (also
subtitles on spec and strategies)
Background Terms: Stock options; stock index options; ETF
WSJ: Find an article on
financial
market structure of futures, derivatives, and their connections
with
stocks or hedging
Week 4 (Sep
17):
Regulation of Financial Markets
Tuesday:
What are key historical episodes in financial regulation? What
are some key points made by economic models and arguments
about regulation?
Krozner Supply
& Demand for Financial Regulation (frb-kc, Symposium 2000);
Manne on SEC; Pitt on
SEC
Assignment
1:--Due Tuesday
September 19 (no quiz this day)
Week
7 (Oct 8):
More on Regulatory Topics
Tuesday: Why
are there restrictions on short transactions and why do
some people want more? (Overstock.com; Investopedia
(read "Related Links")
Background Terms: Short sales (stock)
Thursday: What's
an economic perspective on insider trading Insider
Trading Debates (frb-atl, q4 97);
Background Terms: Insider trading
WSJ: Find an article about
Week 8 (Oct 15): Foundations
of Stock
Movements
Background Terms: present value; expected value; random walk
hypothesis; efficient markets hypothesis;
Tuesday:
What are the main views about
major market
movements Manne
on Market Efficiency Fama on Market Efficiency
(pdf) Fama
Interview
Assignment
2 -- Due Tuesday October 17 (no quiz)
Thursday: Can we identify events that move equity and debt
markets on a
regular basis? Can we simulate the effects off macro-political
events?
Ray Fair
"Events that Shook
the Market" ; Ray
Fair
Simulation Model
WSJ: No WSJ this week; get acquainted with the Fair Simulation
model
Week 12 (Nov 12): Bubbles, Crashes,
and Market Structure
Tuesday:
What are same famous asset price bubbles and crashes? What
regulations are
intended to reduce extreme volatility and do they help? Wikipedia-Bubble
Background Terms: Bubble (economic or financial); Read about specific
bubbles in Wikipedia: "Tulipmania" ; "Nifty Fifty" ;
US Housing Bubble
Thursday: Can we
identify bubbles in an economically meaningful way?
Bubble,
Bubble (frb-stl; April 99)
Week 13 (Nov 19):
Southern
Economics
Association Meetings & Thanksgiving Break (no class)
Part III:
Miscellaneous Topics in Financial Market Policy
Week 14 (Nov 26): Corporate
Governance
Tuesday:
What are the core economic issues related to corporate
governance? What kinds of internal organizational restrains
exist? What kinds of market (beyond internal organization)
restraints on corporate behavior exist? What are some proposed
solutions? Criminalizing
Agency Costs
Homan Jenkins
WSJ article Overview
of Issues in Corprate Governance (frb-ny 2002)
Background Terms: Principal-Agent Problem
Specific governance cases
ASSIGNMENT 3 -- DUE
NOVEMBER
Thursday: Does executive pay make any sense? CEO Pay Jenkins (Reply to Question) CEO Pay Reynolds CEO Pay Posner & Becker
Week
15 (Dec 3):
Taxes & Financial Markets
Tuesday:
What are capital gains, and what are the debates about their
taxation? Capital
Gains - Urban Institute
Estate
Taxes -- Urban Institute
Thursday: Review
Week 16: Final Exam
Extra Stuff
International Capital Flows & Current Account Deficit
Financial Market as Influence on Other Markets
Stock Market Effects on Growth (frb-clev Aug 2002)
Impact of
Financial Development on Growth (Milken Institute Review Magazine,
formerly Jobs & Capital, Spring 98)
Jobs & Capital Mismatch due to Financial Regualtion (Milken
Inst Reports, 1999)
Financial Markets as Predictors
Yield
Curve as a Predictor (frb-ny, June 96)
Does Consumer Confidence Forecast Household Expenditure
(frb-ny, June 98)
IPO Allocation; Research v. Selling;
Globalalization
Global Integration & Regulation (frb-kc, Symposium 2000)
'Macro Markets' as Investiment Option (frb-ny, April 99)
Asian Banking Crisis: Gov't v. Markets Milken
Institute Review Magazine (formerly called Jobs & Capital) , Summer
98; PostCrisis
Asia, Milken Institute Policy Briefs, March 2000)
Crises in Emerging Countries, frb-ny, Nov 2000;
Asian Crisis Postmortem (frb-ny, Sept 2000)
European Union
Modernization & Technology -- Economics
& Politics of Financial Modernization (frb-ny June 2000) ;
Financial Modernization: Same or Different?" (frb-phi, July 2000);
Rethinking Financial Regulation (frb-kc, 2nd Qtr 1996)
Topic: Economic perspectives
on where financial regulation
Using these readings, Krozner Supply
& Demand for Financial Regulation (frb-kc, Symposium 2000),
Manne, Pitt, explain important influences on financial
regulation. Keep in mind, you are writing as economists, not
merely historians. That means that you try to simplify and
condense complex things by using the concepts and tools of economics
even if all of the historical episodes might not fit the simplified
explanations perfectly.
Grading Standards: Your report should be written to provide a
clear answer to a business college senior. It should be written
from an economist's point of view and not just as a general paper on
the subject (see Guide to Assignments). You should draw ideas
from the readings provided, but you should not merely copy or rephrase
those works. The report should must be single-spaced and
typed in 10
to 12 pt font size. Use standard rules of American English and
style (complete sentences, capitalization, paragraphs, indention).
The assignment maximum length is 2 pages. Late assignments
will receive
a 10% per day reduction. The deadline is the beginning of class
on date listed above.
ASSIGNMENT 2 -- Due Thursday
October
Topic: Economic perspectives on stock price movements
Using these readings, Fama on Market Movements, Fama Interview, and
Manne article. Explain the their view of influences on stock
prices,
challenges to this view, and rebuttals to these challenges.
Grading Standards: Your report should be written in a way that
would make sense to a
reasonably motivated Ford College senior. You should draw ideas
from the readings provided, but you should not merely copy or rephrase
those works. Assignments
must must be single-spaced and typed in 10 to 12 point font size.
Use standard rules of American English and style (complete
sentences, capitalization, paragraphs, indention ...). The
assignment
maximum length is 2 pages. Late assignments will receive
a 10% per day reduction. The deadline is the beginning of class.
ASSIGNMENT 3 --
Thursday November
Topic: Economic Perspectives on Corporate Governance Issues
Background Reading: Overview
of Issues in Corprate Governance (frb-ny 2002)
Using the readings, explain the nature of the principal-agent
problem in the context of corporate governance and how several of the
"solutions" intended to improve corporate governance seem to overlook,
misunderstand, or fail to appreciate this problem.