Dr Michela Verardo OLD 4.24 and Dr Jack Favilukis OLD M2.14

This course is available on the BSc in Accounting and Finance, BSc in Business Mathematics and Statistics, BSc in Econometrics and Mathematical Economics, BSc in Economics, BSc in Management, BSc in Management Sciences, BSc in Statistics with Finance and Diploma in Accounting and Finance. This course is available as an outside option to students on other programmes where regulations permit and to General Course students.

Students must have completed Principles of Finance (FM212).

Including both portfolio theory and corporate finance (FM212 or equivalent course).

This course is intended for third-year undergraduates and will be a broad-based follow-up to FM212 Principles of Finance. The goal is to broaden, and selectively deepen, students' understanding of finance, building on their existing knowledge of financial economics. The course will cover a broad range of topics, with both a theoretical and an empirical emphasis. These include topics in corporate finance, investments and performance evaluation and international finance
The course consists of two interchangeable ten-week components, one on investments and international finance, and the other on corporate finance.

The first component provides students with a way of thinking about investment decisions by examining the empirical behaviour of security prices. We first study the empirical evidence of the CAPM and other asset pricing models, and then analyze different tests of market efficiency focusing on event studies and  investment anomalies. We also study the main empirical findings in behavioural finance. We then learn how to measure the performance of a portfolio manager and to attribute it to different types of skill. Finally, this section of the course  introduces the foundations of  international finance and  explores issues related to international portfolio management.

The second component of the course examines theory and evidence concerning major corporate financial policy decisions. We focus particularly on the firm's decision to finance with debt vs. equity, the impact of taxes on such decisions, and the role of dividends. We will begin with the Modigliani and Miller proposition and discuss the firm's choice to raise capital using debt versus equity and the firm's choice to payout earnings using dividends versus repurchases. We will analyze the impact of taxes, financial distress, and asymmetric information on such decisions. We will also cover optimal managerial compensation, take on the role of the policy maker to learn about corporate governance mechanisms and discuss some recent corporate scandals. Finally, we will review empirical evidence from a wide range of international sources to support or refute the theories we discussed.

20 hours of lectures and 8 hours of classes in the MT. 20 hours of lectures and 10 hours of classes in the LT. 2 hours of lectures and 2 hours of classes in the ST.

Students are expected to produce written work for classes and to make positive contributions to class discussions.

Detailed course programmes and reading lists are distributed at the start of the course. Illustrative texts include: Bodie, Kane & Marcus, Investments (Irwin) and Grinblatt & Titman, Financial Markets and Corporate Strategy (Irwin, McGraw-Hill).

Exam (100%, duration: 3 hours) in the main exam period.