<P><FONT size=3> The Economics of Financial Markets presents a concise overview of capital<BR>markets, suitable for advanced undergraduates and for embarking graduate students<BR>in financial economics. Following a brief overview of financial markets – their<BR>microstructure and the randomness of stock market prices – this textbook explores<BR>how the economics of uncertainty can be applied to financial decision making.<BR> The mean-variance model of portfolio selection is discussed in detail, with analysis<BR>extended to the capital asset pricing model (CAPM). Arbitrage plays a pivotal<BR>role in finance and is studied in a variety of contexts, including the arbitrage<BR>pricing theory (APT) model of asset prices. Methods for the empirical evaluation<BR>of the CAPM and APT are also discussed, together with the volatility of asset<BR>prices, the intertemporal CAPM and the equity premium puzzle. An analysis<BR>of bond contracts leads into an assessment of theories of the term structure of<BR>interest rates. Finally, financial derivatives are explored, focusing on futures and<BR>options contracts.</FONT></P>
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