Foundations of Financial Markets

The following description and course documents are for the “Foundations of Financial Markets” course that I currently teach at East China Normal University.

Class Description

This course covers the basic elements of financial markets and securities while providing students the necessary tools to be proactive about their financial future. Both students who are deeply interested in investing directly in the stock market as well as students just worried about their retirement security can benefit from exposure to this fundamental approach. The course provides a comprehensive overview of investment vehicles and alternative assets while exploring the theoretical frameworks that underpin their creation and the markets on which they trade. The course evaluates several outstanding issues of contemporary investment management including the definition of risk, security valuation methods, the asset mix decision, and alternative risk control procedures. Specific quantitative methods, such as the time value of money (TVM), discounted cash flow (DCF) analysis, and the capital asset pricing model (CAPM), will be introduced and used extensively in our examination of today’s financial markets.

After completing the course, students will be able to:

  • Evaluate individual stocks and other types of securities in order to determine their relative valuation.
  • Analyze any competitive industry according to Michael Porter’s widely accepted “Five Forces” analytical framework.
  • Discover mispriced securities in any financial market.
  • Construct a basic security portfolio that satisfies a potential investor’s complex risk and return requirements.

Textbooks

  • Bodie, Kane, & Marcus. Essentials of Investments. McGraw-Hill. For a limited time, my students can download a PDF of the 7th edition here.
  • Ross, Westerfield, & Jordan. Fundamentals of Corporate Finance. McGraw-Hill. For a limited time, my students can download a PDF of the 6th edition here.

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Weekly Topics

  1. Markets, Investors, & Investment Theory
  2. Principles of Security Valuation: Top-Down Analysis
  3. Principles of Security Valuation: Bottom-Up Analysis
  4. Asset Allocation
  5. Time Value of Money (TVM) & Finance Math
  6. Introduction to Fixed Income
  7. Investment Vehicles & Alternative Assets
  8. Discounted Cash Flow (DCF) Analysis
  9. Capital Asset Pricing Model (CAPM)
  10. Introduction to Portfolio Management