Dr Georgy Chabakauri CON.2.08 and Dr Pedro Chauffaille Saffi

This course is compulsory on the BSc in Accounting and Finance. This course is available on the BSc in Business Mathematics and Statistics, BSc in Econometrics and Mathematical Economics, BSc in Economics, BSc in Management, BSc in Mathematics, Statistics, and Business, 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) and Principles of Finance (FM213).

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 analyse 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. We will start with the famous Modigliani and Miller proposition and will then analyse the impact of taxes, financial distress, agency frictions, and asymmetric information on financing decisions. We will then critically analyse different valuation methods and investment criteria (NPV, IRR, APV, WACC method, valuation by comparables) and conclude the course with a critical analysis of the market for corporate control.

20 hours of lectures and 10 hours of classes in the MT. 20 hours of lectures and 10 hours of classes in the LT. 2 hours of lectures and 1 hour 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 summer exam period.