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Economics 434

Economics 434. Financial Markets Professor Burton University of Virginia Fall 2013. Administrative. Office Hours, Etc. Monroe Office: Room 262, 434-924-4054 VNB Office: 1900 Arlington Blvd., Suite C, 212-731-2340 Office Hours: 11am-12pm Tues/Thurs at 1900 Arlington Blvd

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Economics 434

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  1. Economics 434 Financial Markets Professor Burton University of Virginia Fall 2013

  2. Administrative • Office Hours, Etc. • Monroe Office: Room 262, 434-924-4054 • VNB Office: 1900 Arlington Blvd., Suite C, 212-731-2340 • Office Hours: 11am-12pm Tues/Thurs at 1900 Arlington Blvd • Email: etb6d@virginia.edu • Class Website: http://people.virginia.edu/~etb6d/classes.htm • Syllabus posted on site w/ required readings • Additional course material to be posted here (textbook chapters, etc.) • Grading: • Two mid terms and one final, weighted 30, 30, 40 • Grades on each exam adjusted against the mean • Grade distribution: roughly 1/3 A’s, 1/3 B’s, 1/3 C’s (can be D’s or F’s, though) • Absolute grade does not matter. Could make a C with a 90 average, for example • Students are responsible for: • All lectures including powerpoint slides and all lecture content • All readings – no exceptions

  3. Course Overview Topics Covered • Debt and Equity Markets • Modern Portfolio Theory • Leverage, Corp. Balance Sheets, Buyouts Pre-requisites: • Econ 3010 – Intermediate Micro • Econ 3030 – Money and Banking • Econ 3710 – Intro to Statistical Analysis • Questions/Concerns – See me (esp. xfer students)

  4. Grading Three Exams: • First mid-term – Tuesday, October 10th • Second mid-term – Tuesday, November 12th • Final – Monday, December 9th, 2pm - 5pm There is no “Dutch knockout” – you must take all exams Honor System • Applies to all graded assignments/exams • Conscientious Retraction Option

  5. What kind of material is covered? • Debt & Equity Markets • Modern Portfolio Theory • Leverage and High Yield • Derivatives

  6. Readings? • Malkiel – “Random Walk Down Wall Street” • Burton – “Theory of Financial Markets” -$30 when and if available -Otherwise look for notes on the course website • David Stockman – “The Great Deformation”

  7. Industrial Average For Today: A brief history of financial markets… Began on May 26th 1896 at: 40.94

  8. The Early Years 381.17Sep 3rd, 1929 40.94May 26th, 1896

  9. The Great Crash of 1929 381.17Sep. 3rd, 1929 41.22July 8th, 1932

  10. The Thirties in Review 381.17Sep. 3rd, 1929 192.91Mar. 3rd , 1937 155.92 Sep. 12th, 1939 41.22July 8th, 1932

  11. Trends 1939-1966 954.73 Apr. 21th, 1966 725.76 Aug. 22th, 1961 536.98 Jun. 27th, 1962 155.92 Sep. 12th, 1939

  12. 1966-1980 Trend 1036.27 Dec. 11th, 1972 1007.42 Jun. 11th, 1981 954.73 Apr. 21st, 1966 774.88 Sep. 8th, 1966 584.56 Oct. 4th, 1974

  13. 1981-2000 Peak in April 2000 11,287 April 11th, 2000

  14. 1987 – The “Rip Van Winkle” Year

  15. Since 2000 15,658Aug. 2nd, 2013 13,950 Jul. 16th, 2007 6,547Mar.9th, 2009

  16. Current Financial Market Backdrop • European Debt Crisis • Stagnant Economic Growth in the US • The Rise of Asia

  17. European Debt Crisis • The PIIGS • Portugal, Italy, Ireland, Greece and Spain • Massive sovereign (national) debt relative to GDP • Bailouts • European Union bailouts • Future of the Euro

  18. Stagnant US Economic Growth • GDP under 2% real economic growth • Historically weak economic recovery • Unemployment lingers in the 9% range • Inflation beginning to creep up: > 2.5 % • National Debt Soaring out of Control • State and local government finances in disarray

  19. The Rise of Asia • Other than Japan (3rd largest economy in the world). Japan more like the West (stagflation, high debt load). • China growing at 8 to 9 percent. • India and Russia and Brazil nearly 10% per year growth.

  20. GDP Growth Rate of 4 Emerging Markets Sources: World Bank & IMF

  21. Since Jan 1st:

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