Fabrice Riva

Professor in Finance, Université Paris - Dauphine

Financial Markets

Les objectifs du cours

The structure and organization of stock exchanges in Europe have been evolving considerably over the last 20 years. The quotation of orders on a single stock exchange is no longer mandatory and former national monopolistic stock exchanges must now compete with new entrants. To gain an understanding of the recent developments and changes that fundamentally transformed the stock exchange industry, it is important to understand where transaction costs (both explicit and implicit) and liquidity arise from. It is equally important to understand organization of trades and different order types that investor can submit in stock exchanges. These will be the subject of the first part of the course.
Part 2 establishes the fundamental relation between risk and return by enabling students to understand how to calculate and use stock market indices, calculate rate of return with adjusted prices, characterize return probability distributions, calculate the risk of an asset based on its volatility and its Value at Risk (VaR), decompose the risk of an asset, calculate the risk of a portfolio, and characterize a minimum variance portfolio. These provide the students with the necessary toolbox to apply the theory and concepts developed in Part 3, such as the notion of risk aversion, risk premium, the use of utility functions in modelling choice under uncertainty, which lead to the development of the CAPM – Capital Asset Pricing Model and follow-up multi-factor models.
Part 4 examines the way information is incorporated into prices. Understanding different forms of efficiency, tests of efficiency, anomalies and their implications becomes crucial in order to derive conclusions about functioning of financial markets.
The concepts and theories developed in the first three parts have numerous application areas in finance. Among them are agents’ investment and financing decisions, estimation of a firm’s cost of capital and techniques on measuring the performance of portfolio managers. Part 5 introduces and details those practical tools used by financial decision makers.

Plan du cours

Introduction : The Role of Financial markets

PART I: Stock exchanges and their organization

  • Markets and their structure
  • Organization of trades
  • Liquidity and transaction costs
  • The role of regulation and technology

PART 2: Risk and return

  • Stock market indices
  • Calculating returns
  • Risk of a single asset
  • Risk of a portfolio
  • Portfolio theory

PART 3: Attitude toward risk, market equilibrium and asset pricing models

  • Attitude towrad risk
  • Risk-free asset and 2-fund separation theorem
  • CAPM
  • Beyond CAPM (Multi-factor models)

PART 4 : Market efficiency and price anomalies

  • Information efficiency
  • Sources of efficiency
  • Characterization of efficient prices
  • Three forms of efficiency
  • Tests of efficiency
  • Anomalies and behavioral finance

PART 5: Applications

  • Performance measurement
  • Capm and the cost of capital
  • Investment decision


Class handouts are downloadable from course webpage on MyCourse

Bodie Z., A. Kane, A. Marcus, 2014. Investments. McGraw-Hill, 10th ed.Harris, L., 2003. Trading and Exchanges: Market Microstructure for Practitioners. Oxford University Press.
Harris, L., 2003. Trading and Exchanges: Market Microstructure for Practitioners. Oxford
University Press.
Hillier D., Grinblatt M. and S. Titman, 2011. Financial Markets and Corporate Strategy. Irwin-Mc Graw Hill, 2nd European edition.
Madura, J. 2015. Financial Markets and Institutions. South Western, 11th ed.


12 3-hour classes. Practical examples and solutions to exercises in class.

Grading: mid-term exam (50%) and final exam (50%).