Instructors: Dr Stephen Kinsella and Dr Antoine Godin

Contact: Stephen.Kinsella@ul.ie, phone +353 61 23 3611. Office hours 10-1. Wednesdays. No need to make an appointment, just show up. If you need to send me an email please see my email policy first. No I'm not kidding about that. Antoine.godin@ul.ie, Office hours TBA.

Introduction. The charts at these links show the Dow Jones (^DJI) against the Irish Stock Exchange (^ISEQ) and the S&P 500 (^GSPC) over the last 5 years. I don't need to tell you something has gone very wrong in world financial markets, and some things may be going right. This module will help you understand some of the reasons behind these large destructions of wealth.

Learning Objectives. This module is firstly an introduction to the point of finance, to the ends finance gets taken to. Secondly, we would like you to have a sense of how finance and the financial industry connects to the real economy, especially during times of crisis. Third, I'd like you to see some simple financial models of innovation, microfinance, credit defaults and high frequency trading.

Module Organisation. The module will be divided roughly in two. First, Dr Kinsella will lay out the basics of financial economics, and from weeks 7-11 Dr Godin will work on applications.

Assessment.  You'll write a project for me, due on the Monday of Week 5 worth 40%. Here are the project details. A template file for the data project is here. Feedback will be given on all submitted projects through Turnitin, the module's Turnitin coordinates for 2013's class are: Class id: 7470037, Password: EC40242014. Guidance on Turnitin will be provided in Tutorials. KBS grading bands are here. Late projects will incur a 99% late penalty for each day of lateness. There will be a final exam worth 60% of your grade. A sample exam will be provided in week 9. The final exam will be 2.5 hours, with 10 short questions, and 3 from 7 long questions. All the tutorial resources you need are here. 

Here is the sample exam for the module

Administration We will give out handouts during certain lectures. Recommended readings by lecture are below each heading as .pdfs or are housed as ebooks within the library catalogue. All projects will be checked with Turnitin. Tutorials from Weeks 2 to 5 will focus on preparing you for the project submission. Weeks 6 to 11 will focus on getting the theoretical tools of finance properly under your belts. You can't critique something you don't understand. Also, read the works of respected market practitioners. It's important to place the theoretical views we study here in their current context. For example, the maths for debt sustainability can be very boring, unless you realize getting things wrong could result in real world misery for a lot of people.

Lecture by Lecture guide.

1. What is the purpose of finance? What is the market? (Lecture notes)

• Shiller's Nobel Prize speech
• M.F.M Osborne, The Stock Market from a Physicist's Viewpoint, Crossgar Press, 1977 Chapter 2 and Chapter 3.
• Janeway, William "Doing Capitalism in the innovation economy: Markets, capitalism, and the State", Cambridge University Press, 2013.

2. Macro/Finance/Regulation, IS-MP, and Regulation theory (Lecture notes)

• Shiller, R. (2005)"Behavioral Economics and Institutional Innovation", Southern Economic Journal 72 (2), pp. 269-283.
• Romer, D. (2012) Short Run Fluctuations, Berkley Working Paper January 2012
• Kinsella, S. and O'Sullivan, K.P.V (2013 ) Financial and Regulatory Failure: The Case of Ireland, Journal of Banking Regulation, 14(1), 1-15.

3. Banking/Regulation/Crises: Minsky and Balance Sheet Recessions. (Lecture Notes)

• Richard Koo, 2011, The World in Balance Sheet Recession: Causes, Cure and Politics. Real-World Economics Review 58(1), 2011.
• Hyman Minsky (1992) The Financial Instability Hypothesis, Levy Institute 74
• Mark Allen, Christoph Rosenberg, Christian Keller, Brad Setser, and Nouriel Roubini (2002) A Balance Sheet Approach to Financial Crisis, IMF Working Paper WP/02/210 (you only need to read the first two sections)

4. ECB, Ireland, and EMU: Bond Markets as king makers (Lecture Notes)

• Watch Otmar Issing talking in 2012 on sovereign debt and capital flows.
• Paul De Grauwe (2009): The Fragility of the Eurozone's Institutions, Open Economies Review, 21 (1), pp.167-174
• Khan Academy, Introduction to Bonds
• Notes on The International and Domestic Money and Bond Markets

5. Cross Border Capital flows: leverage, liquidity and crises (Lecture Notes)

• Philip Lane, " Capital Flows in the Euro Area," European Economy Economic Paper No. 497, April 2013.
• Hyun Shin, Capital Flows, Cross-Border Banking and Global Liquidity (with Valentina Bruno (December 2012 version)
• Carlos Cuerpo, Inês Drumond, Julia Lendvai, Peter Pontuch and Rafal Raciborski Indebtedness, Deleveraging Dynamics and Macroeconomic Adjustment, European Economy Economic Paper 477, April 2013.

6. Zombie theories of finance (Lecture Notes)

• Watch John Quiggin's lecture on Zombie Economics.
• Modigliani, F. and Miller, M. (1958) "The Cost of Capital, Corporation Finance and the Theory of Investment", American Economic Review 48 (3), pp. 261-297.
• Fama, E.F. (1970) "Efficient Capital Markets: A Review of Theory and Empirical Work", Journal of Finance 25 (2), pp. 383-417.
• André F. Perold The Capital Asset Pricing Model The Journal of
• Economic Perspectives, Vol. 18, No. 3. (Summer, 2004), pp. 3-24.
• (Here are some Notes on CAPM)
• Anne Villamil, Modigliani Miller Theorem, New Palgrave Dictionary of Economics

7. Finance, Innovation and growth: Schumpeter vs Romer. A case of technological change (AG's Lecture notes)

• Greenwald, B. C. and Stiglitz, J. E. (1993). Financial market imperfections and business cycles. The Quarterly Journal of Economics,108(1)
• Perez, C. (2010). Technological Revolutions and Techno-Economic Paradigms. Cambridge Journal of Economics, 34(1).
• Romer, P. (1990). Endogenous Technological Change. Journal of Political Economy, 98(5)

8. Finance and Development: 1 Microfinance: holy grail of development finance? (AG's Lecture Notes)

• Bhaduri, Amit (1973) A Study in Agricultural Backwardness Under Semi-Feudalism. The
• Economic Journal , Vol. 83 (329).
• Stiglitz, Joseph (1990) Peer Monitoring and Credit Markets. The World Bank Economic Review, Vol. 4, No. 3,
• Morduch, Jonathan (2000), The Microfinance Schism, World Development, 28(4)

9. Finance and Development 2: Swaps and CDS as a good thing? (AG's Lecture Notes)

• Rutten, Lamon (2003). A primer on new techniques used by the sophisticated financial fraudster . Report, United Nations Conference On Trade And Development (UNCTAD), 2003.
• Philips, Matthew (2008). The Monster That Ate Wall Street. Newsweek, September 27, 2008.
• Weistroffer, Christian (2009) Credit default swaps - Heading towards a more stable system,
• Deutsche Bank Research, Current Issue, December 21, 2009.

10. Algorithmic trading, high frequency finance: the case of the flash-crash

• Arnuk, Sal and Joseph Saluzzi (2012), Broken Markets, Chapters 2 and 10.
• Tarun Chordia, Amit Goyal, Bruce N. Lehmann, Gideon Saar (2013) High-frequency trading, Journal of Financial Markets 16(4).

11. Ethical Finance: doing good and making money at the same time? (Lecture Notes)

• Carol Cosgrove-Sacks and Paul H. Dembinski (Eds.) Trust and Ethics in Finance -Innovative ideas from the Robin Cosgrove Prize Globethics.net F. de Clerck (2009). Ethical Banking. In Ethical Prospects (pp. 209-227). Springer Netherlands.
• Paul H. Dembinski (2012) Ethics and the Economy: A Tense Relationship
• Bruno Federico Fernández (2012) Ethics vs. Finance? An analysis of the Origins, Problems and Future Perspectives of this Relationship
• Deirdre McCloskey, Adam Smith, the Last of the Former Virtue Ethicists 
• Arthur Okun, Equity and Efficiency, the Big Tradeoff

12. Recap.