This is an introductory course designed for second-year undergraduate
students with finance major. Its purpose is to get students familiar with
both the theory and practices in financial markets and to prepare them for
advanced and specialized courses such as Futures and Options Markets, Bond
Markets, and Management of Financial Institutions. The contents of this
course will follow closely the required textbook, Investments and Portfolio
Management, by Zvi Bodie, Alex Kane, and Alan J. Marcus (McGraw-Hill),
the newest edition.1 Although some chapters will not be covered in class,
they will be assigned as background readings, and will be tested in the mid-
term and final exams. Other than the textbook, lecture notes will be posted
at the course website regularly.
The course proceeds in four steps. We shall first look at the major finan-
cial markets and instruments in the world, discuss their trading mechanisms,
and emphasize their role in helping people attain risk-sharing efficiency and
enhance individual welfare. Second, we shall review some basic ideas in the
decision theory under uncertainty and the two classic static asset pricing the-
ories, the Capital Asset Pricing Model and the Arbitrage Pricing Theory. In
the third part of the couse, we shall first introduce the notion of market effi-
ciency (and present some empirical evidence) and then examine in detail the
markets for fixed-income securities, for equity, and for derivative assets such
like futures and options. Here pricing and hedging are both the emphases.
In the last part of the course, if time allows, we shall discuss active port-
folio management strategies as well as performance evaluation of portfolio
managers. We shall briefly mention hedge funds.