The Midterm resit will be held from 4-5 in HSG-037, right after the lecture. Please note you’ll need to show me a medical cert to take the exam.
Posts Tagged: EC4024
11
Mar 10
EC4024 Problem Set 2
In the interests of maintaining sanity, I’ll put the second problem set up next Monday to give everyone a breather.
I gather 2nd Year economics majors have been mid-termed and projected out this and last week.
13
May 09
EC4024 Problem Set Marks
Click below to find the (revised) problem set marks (both are out of 100) well done to everyone, any questions, please email me.
20
Apr 09
EC4024, Financial Economics, Final Lecture
It’s ovah!
Hhere are the lecture slides for the last lecture on Friday, and I’ll set up office hours next week.
Thanks to everyone for making this an interesting class to teach!
18
Apr 09
EC4024 Lecture 19: Neurofinance
The penultimate lecture takes students right up to the cutting edge of behavioural finance: neurofinance.
Neurofinance is a fusion of behavioural economics and neuroeconomics.
I know that’s not too helpful yet. Behavioural economics in its modern incarnation looks at persistent deviations from the basic description of the hyper rational homo economicus. Proponents of the theory argue that these deviations aren’t deviations at all: they are, in fact, features of human behaviour we’d like to take as primal to any description of human behaviour. Practitioners use game theory to model how boundedly rational (that is, agents don’t know everything, and can’t process information they receive quickly enough to make sense of the entire world simultaneously) agents might react given an investment decision, and then test the predictions of the game against people’s actual responses. Only instead of looking at revealed behaviours and choices made, neurofinance specialists will look at actual brain responses, and try to figure out what neurological basis there is for such a decision. This area of research is still very much in its infancy, but it is definitely worth a lecture to expose you to the cutting edge of this type of research.
Here’s a 3 slide handout (with many thanks to Dr Liam Delaney for the slides).
Readings/Links
Peter Bossaert’s Lab at Caltech
Kerstin Preuschoff, Peter Bossaerts, and Steven R. Quartz Neural Differentiation of Expected Reward and Risk in Human Subcortical Structures Neuron 51, 381–390, August 3, 2006
Colin Camerer, George Loewenstein, Drazen Prelec, “Neuroeconomics: How neuroscience can inform economics“, Journal of Economic Literature, 2005
Paul J. Zak The Neurobiology of Trust Scientific American, June 2008
17
Apr 09
The IMF on Crisis and Recovery
The IMF released it’s World Economic Outlook report, which has some interesting things to say about the international economic situation. Pay particular attention to page 105, where they contrast today’s economic outlook with the Great Depression. This report resonates well with the recent work of O’Rourke and Eichengreen, too.
16
Apr 09
Financial Economics Lecture 18: Behavioural Finance
“We have an irrational tendency to be less willing to gamble with profits than with losses..”
––Tvede (1999)
In these lectures, we’ll build on the insights of the Efficient and Adaptive Markets hypotheses, and have a go at puling them down at the same time. This might sound contradictory, but it’s not. All science (even a pseudo-science like modern economics) advances through sustained and successful criticism. It’s ok to tear down the existing theory, but if you do, try to make sure there’s something to replace it with.
Stated baldly, Behavioural Finance is the study of the inefficiency of real world markets. Most of the time, behavioural finance theorists will borrow concepts from psychology or sociology to make their claims more realistic. The behavioural economics movement is closely aligned with the Neuroeconomics movement currently en vogue in academic economic circles. Dr. Liam Delaney of UCD’s Geary institute retains a bibliography of neuroeconomics readings, if you’re interested.
To the theory-proper. In previous lectures, we worked on the Efficient Markets Hypothesis: markets price traded assets to remove the possibility of arbitrage, making risk-less profits harder and harder to come by.
Nobellist Daniel Kahneman and his colleague Amos Tversky studied decision making under uncertainty over a long period of time (their most famous article is here). They found three heuristics people use to help them make judgements under uncertainty:
1. Representativeness. When possibly erroneous commonality between objects of similar appearance is assumed.
2. Availability. We base our predictions of the frequency of events or the proportion within a population based on how easily an example can be brought to mind.
3. Anchoring and Adjustment. We overly rely, on specific information or a specific value and then adjust to that value to account for other elements of the circumstance. Usually once the anchor is set, there is a bias toward that value.
In this lecture, we’ll look at Prospect theory and asset pricing, and compare Kahneman’s and Tversky’s theory to the data. We’ll also see how various famous behavioural economists (Profs. Shiller, Thaler, and Camerer).
In lecture 19, we’ll move on to consider Thaler’s ‘Anomalies’: holes he and co-authors have found in the existing body of theory, as they apply to Financial Economics. Here is a 3 slide per page handout.
Slides
Financial Economics Lecture 18 Behavioural Finance
View more presentations from kinsells.
Links
Thaler’s Anomalies page, get the papers here.
Camerer, C. and G. Loewenstein (2003). “Behavioral Economics: Past, Present, Future,”
Sewell, M. (2008) “Introduction to Behavioural Finance” ⁃
Shiller, R. (2002), “From Efficient Markets to Behavioural Finance.“
9
Apr 09
What is the point of the economy?
Visiting a friend’s house last night, their seven year old asked what I did. I told her I was a guy who studied the economy.
She asked me:
What does the economy do?
In your opinion, what does the economy do? Answers either by email or in the comments.
2
Apr 09
EC4024 Lecture 17 The ECB and Investor Behaviour
Tomorrow’s lecture will review the functions of the ECB and discuss the transmission mechanisms of monetary policy with regard to the interaction of the central bank and very large, institutional investors. We’ll use pensions as an example of a very large institutional fund which has direct effects on the population when things go wrong.
Here’s a 3 slide handout, and here are the slides.
Readings
Liang and Weisbenner,Investor Behavior and the Purchase of Company Stock in 401(k) Plans – The Importance of Plan Design
Blinder,A. Central Banking in Theory and Practice, MIT Press, Cambridge, Mass, 1998.
Scheller, The ECB, History, Role, and Functions, 2004
OECD, Private Pensions Outlook, 2008.
Attacks on pension relief short-sighted and reckless, Irish Times, 2/04/09
1
Apr 09
EC4024 Financial Economics Problem Set 2
Here’s problem set 2, get your excel on folks. It’s due in on Monday, 20th April.
Data
22
Mar 09
Financial Economics Lecture 15: Corporate Governance & Financial Fragility in Ireland
This lecture will introduce financial economics students to the concepts of Irish corporate governance, and corporate social responsibility. The goal is to show how lax corporate governance and financial fragility as defined by Minsky interact. Given the recent episodes in our indigenous banking sector, this lecture is pertinent, timely, and practical.
Here is a 3 slides per page handout, below are the slides themselves.
Financial Economics Lecture 15: Governance & Financial Fragility in Ireland
View more presentations from kinsells.
Readings
Hyman Minsky page at HET, his big book “Stabilizing an Unstable Economy” (Hyman Minsky)
Stephen Kinsella, Financial Fragility and Corporate Governance in Ireland, in Ronan Keane and Ailbhe O’Neal, (eds), Corporate Governance: An Irish Perspective, Roundhall Press, 2009 pgs. 147-170. Draft version here.
20
Mar 09
Financial Economics, Lecture 14. Iceland and Ireland: Fair and Unfair Comparisons
This lecture takes a hard look at what has happened in Iceland. from the fall of Lehman Brothers last year to the present day. We’ll look at the comparisons which have been made between Iceland and our fair green isle, and see which ones are valid, which ones need clarification, and which points are, simply, bullshit.
Here’s a 3 slide handout of the lecture, here’s the data handout and the slides are below.
EC4024 Lecture 14: Iceland and Ireland: Fair and Unfair Comparisons
View more presentations from kinsells.
Readings
The collapse of Iceland’s banks: the predictable end of a non-viable business model
GDP Growth Rate Calculator for Iceland
Buiter & Sibert: The Banking Crisis and What to Do about it.
18
Mar 09
AIG Outrage
Prof. James Hamilton digests the pure rage AIG’s decision to pay its executives 165 million dollars in bonuses, some of them to people who no longer worked for AIG. Hamilton writes:
“One of the reasons this is so outrageous is that the promise of such bonuses was in fact one of the very factors that caused our current problems, creating incentives for managers of AIG to get out of solid insurance underwriting and into hedge fund gambling. If anyone had supposed that AIG had “learned its lesson”, this report seemed to dash that hope against the wall like a plate of china.”
On a slightly lighter note, here’s MIT’s Ricardo Caballero on more constructive solutions to the crisis.
13
Mar 09
EC4024 Lecture 12, International Money Markets
Here’s a 3 slides per page handout, the slides are below, the report I’ll be shiting on about is summarised here, as well as the sample exam, and the roadmap for the next few weeks. Get them while they’re hot. Podcast after, bien sur.
Ec4024 2009 Lecture12
View more presentations from kinsells.
13
Mar 09
EC4024 Roadmap
We are now closing on Week 8 of the term, and things have stabilised enough in the module, and in my thinking about the module, to start laying out a roadmap for the type of material you’ll see for the next 6 weeks, and the type of stuff you’ll be evaluated upon. There are 10 more lectures to think about, because week 11 is a reading week. So, here it is, lecture by lecture, and reading by reading. I’ve an extra lecture in there to make up for a missed one.
In tutorials, we’ll be spending time in the Trading Simulation floor from next week, and using this resource well will become part of your second problem set. So, here’s the roadmap:
(today) Lecture 12: Domestic and International Bond Markets. Reading: Pilbeam, cht. 12
Lecture 13: Stabilistation & Growth Pacts, the ECB, and Ireland. Reading: Cournot Institute Working Paper by Solow et al.
Lecture 14: Default Probabilities and Defunct States: Ireland and Iceland. Reading: Buiter & Sibert, http://www.voxeu.org/index.php?q=node/2498
Lecture 15: Financial Fragility in Ireland, Reading: Kinsella, Financial Fragility in Ireland,2009.
Lecture 16: The European Central Bank & Investor Behaviour. Reading: Buiter, W: Why the United Kingdom Should Join the Eurozone
Lecture 17: The Credit Default Swap Market, the Subprime Crisis, and Ireland, 2008-2009. Reading: Shiller, R, The Subprime Solution, chapters 2 and 3.
Lecture 18: Behavioural Finance 1: CAPM and Reality. Reading: course notes
Lecture 19: Behavioural Finance 2: Biases and Trading. Reading: course notes
Lecture 20: Behavioural Finance 3: The Efficient and Adaptive Markets Hypotheses. Reading: Lo (2004)
Lecture 21: Options & Option Pricing, Reading: Pilbeam, Cht 15, and course notes
Lecture 22: Options Pricing 2: Reading, Taleb & Huag.
Lecture 23: Recap lecture. Readings: All of them 
