ULMS Electronic Module Catalogue
The information contained in this module specification was correct at the time of publication but may be subject to change, either during the session because of unforeseen circumstances, or following review of the module at the end of the session. Queries about the module should be directed to the member of staff with responsibility for the module.
Title FINANCIAL CRISES AND DEFAULTS
Code ECON309
Coordinator Prof KC Milas
Economics, Finance and Accounting
Costas.Milas@liverpool.ac.uk
Year CATS Level Semester CATS Value
Session 2017-18 Level 6 FHEQ First Semester 15

Pre-requisites before taking this module (other modules and/or general educational/academic requirements):
ECON223  

Modules for which this module is a pre-requisite:
 

Programme(s) (including Year of Study) to which this module is available on a required basis:
 

Programme(s) (including Year of Study) to which this module is available on an optional basis:
BA Business Economics - year three; BA Business Economics with a Year in Industry - year four

Teaching Schedule
  Lectures Seminars Tutorials Lab Practicals Fieldwork Placement Other TOTAL
Study Hours 24
Two hour weekly lecture
5
Lab-based seminar.
        29
Timetable (if known)              
Private Study 121
TOTAL HOURS 150

Assessment
EXAM Duration Timing
(Semester)		 % of
final
mark		 Resit/resubmission
opportunity		 Penalty for late
submission		 Notes
Unseen Written Exam  120  Semester one  80  Yes  Standard UoL penalty applies  Examination 
Unseen Written Exam  45  Semester one  20  Yes  Standard UoL penalty applies  Mid-term test Notes (applying to all assessments) Quite early in the module (week 2), a mock mid-term paper (with answers) will be provided in VITAL. This will be discussed well in advance of the mid-term exam. Doing so will give students the necessary preparation for the mid-term exam. Once the mid-term paper is marked, answers will be provided in VITAL. A mock final exam paper (with answers) will also be provided in VITAL by week 5. The mock final exam paper will be discussed in detail during the final lecture. Once the final exam marks are confirmed by the appropriate exam board, a detailed announcement will be placed in VITAL. This announcement will (a) list the distribution of marks and (b) provide general feedback on the exam paper. Equally important, and once marks are released, the exam paper, together with answers, will be posted in VITAL.  
CONTINUOUS Duration Timing
(Semester)		 % of
final
mark		 Resit/resubmission
opportunity		 Penalty for late
submission		 Notes
             

Aims

This module aims to provide students with a fundamental understanding of the core theoretical and empirical aspects involved in financial crises and defaults. In particular, the aims are that students will be able to:

  1. Become familiar with a range of mathematical techniques commonly employed in finance with particular empha sis on sovereign debt valuation.

  2. Develop an understanding of the main factors behind financial crises and sovereign defaults.

  3. Become familiar with a range of econometric techniques and models commonly use d in order to assess whether asset prices become mispriced (that is, overvalued or undervalued) prior, during and after financial crises.

  4. Become aware that all econometric models, which are dependent on a set of underlying assumptions such as a linear versus a non-linear specification or the conditioning information set (in terms of defining the so-called ‘control’ variables), have limitations in the sense that the answer to a particular problem might change once the underlying assumptions change.

Learning Outcomes

Students will be able to understand the principles of sovereign debt evaluation.

Students will be able to understand how credit-rating agencies assign credit-rating scores to sovereign bonds.

Students will be able to develop a deep understanding of the main economic and financial factors that trigger financial crises and sovereign defaults.

Students will be able to develop the ability to analyse and evaluate economic data in order to empirically assess (using econmetric software EVIEWS) whether excessive debt levels impact negatively on economic growth.

Students will be able to develop the ability to analyse and evaluate economic and financial data in order to empirically assess (using the econometric software EVIEWS) whether asset prices are mispriced prior, during and after financial crises.

Teaching and Learning Strategies

Lecture - Two hour weekly lecture

Seminar - Lab-based seminar.

Syllabus
1 

  1. The vision thing: Why did no one see the financial crisis coming?

  2. Back to the basics: Stock and debt valuation. The term structure of interest rates. Credit rating agencies. Debt, economic growth and credit ratin g decisions. How credit rating agencies assign credit rating scores.

  3. Quantitative Case Study I: A simple empirical model of the relationship between debt and growth in the G7 economies.

  4. The years prior to the financial crisis with emphasis on the UK economy: Bank of England’s monetary indep endence and Gordon Brown’s “no return to boom and bust”.

  5. The 2007-2009 financial crisis.

  6. Response to the 2007-2009 financial crisis. Fiscal stimulus. Quantitative Easing policies. Forward guidance. Negative interest rates.

  7. Quantitative Case study II: Stock market mispricing during normal times and financial crises. Empirical evidence from two centuries of data.

  8. The Eurozone crisis.

  9. Social media and financial markets in today’s world. How Twitter affects stock prices. The impact of #Grexit tweets on the Eurozone bond market.

  10. Brexit issues.

  11. What we have learnt from financial and debt crises over the last two centuries.

Recommended Texts
Reading lists are managed at readinglists.liverpool.ac.uk. Click here to access the reading lists for this module.
Explanation of Reading List:

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Recommended

Name, author and edition of text

Is this a key text or a recommended text?

Other information (see bullet points in guidance notes above)

Smith, D. (2015). Something will turn up. Britain’s economy, past, present and future. Profile Books, London.

Key

Students are expected to read (in addition to power point lecture presentation).

Brealey, R.A., Myers, S.C. and Allen, F. (2014). Principles of Corporate Finance, 11th Edition, McGraw Hill.

Recommended (only for Topic 2)

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Students are expected to read (in addition to power point lecture presentation).

 

 

 

Afonso, A., Gomes, P. and Rother, P. (2011). Short- and long-run determinants of sovereign debt credit ratings. International Journal of Finance and Economics, volume 16, pp. 1-15.

 

Recommended

This is supplementary reading which is quite technical. It will be briefly discussed (in a non-technical manner) during the lecture. Students are not required to do any additional private reading on this.

Boumparis, P., Milas, C. and Panagiotidis, T. (2015). Has the crisis affected the behavior of the rating agencies? Panel Evidence from the Eurozone. Economics Letters, volume 136, pp. 118-124.

 

Recommended

This is supplementary reading which is quite technical. It will be briefly discussed (in a non-technical manner) during the lecture. Students are not required to do any additional private reading on this.

Reinhart, C. and K. Rogoff (2010). Debt and growth revisited. Available from:

http://www.voxeu.org/article/debt-and-growth-revisited

 

Students are expected to read (in addition to power point lecture presentation).

Milas, C. (2015). How Twitter can see the financial future – and change it. The Conversation. Available from:

https://theconversation.com/how-twitter-can-see-the-financial-future-and-chang e-it-50338

 

Recommended

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