The Economics of Financial Markets presents a concise overview of capital markets,
suitable for advanced undergraduates and for beginning graduate students in financial
economics. Following a brief overview of financial markets their microstructure and
the randomness of stock market prices this textbook explores how the economics of
uncertainty can be applied to financial decision-making. The mean variance model of
portfolio selection is discussed, with analysis extended to the capital asset pricing
model (CAPM). Arbitrage plays a pivotal role in finance and is studied in a variety of
contexts, including the APT model of asset prices. Methods for the empirical evaluation of
CAPM and APT are also discussed, together with the volatility of asset prices, the
intertemporal CAPM and the equity premium puzzle. An analysis of bond contracts leads into
an assessment of theories of the term structure of interest rates. Finally, financial
derivatives are explored, focusing on futures and options contracts.
Concise overview of capital markets
Emphasises economic principles
Companion website including a variety of online resources
Table of Contents
Preface
1. Asset markets and asset prices
2. Asset market microstructure
3. Predictability of prices and market efficiency
4. Decision making under uncertainty
5. Portfolio selection: the mean variance model
6. The capital asset pricing model, CAPM
7. Arbitrage
8. Factor models and arbitrage pricing theory, APT
9. Empirical appraisal of the CAPM
10. Present value relationships and price variability
11. Intertemporal choice and equity premium puzzle
12. Bond markets and fixed interest securities
13. Term structure and interest rates
14. Futures markets fundamentals
15. Futures markets speculation and hedging
16. Futures markets applications
17. Swap contracts and swap markets
18. Options markets: fundamentals
19. Options markets price determination
20. Options markets applications.
Reviews
This is a very well written and thorough presentation of the key topics in financial
economics the book deserves to be widely adopted in support of courses in this
dynamic area of teaching and research.- Peter Smith, Professor of Economics and Finance,
University of York
Roy Bailey has written a highly readable and comprehensive introduction to financial
markets. He takes the reader carefully through relevant theories before describing how
they relate to different financial markets. Students will benefit from Roy Baileys
rigorous but approachable style of writing.- Colin Mayer, Peter Moores Professor of
Finance, Said Business School, University of Oxford
Paperback
548 pages