Asset Prices, Booms and Recessions : Financial Economics From a Dynamic Perspective

The financial market melt-down of the years 2007-2009 has posed great challenges for studies on financial economics. This financial economics text focuses on the dynamic interaction of financial markets and economic activity. The financial market to be studied here encompasses the money and bond market, credit market, stock market and foreign exchange market; economic activity includes the actions and interactions of firms, banks, households, governments and countries. The book shows how economic activity affects asset prices and the financial market, and how asset prices and financial market volatility and crises impact economic activity. The book offers extensive coverage of new and advanced topics in financial economics such as the term structure of interest rates, credit derivatives and credit risk, domestic and international portfolio theory, multi-agent and evolutionary approaches, capital asset pricing beyond consumption-based models, and dynamic portfolio decisions. Moreover a completely new section of the book is dedicated to the recent financial market meltdown of the years 2007-2009. Emphasis is placed on empirical evidence relating to episodes of financial instability and financial crises in the U.S. and in Latin American, Asian and Euro-area countries. Overall, the book explains what researchers and practitioners in the financial sector need to know about the financial-real interaction, and what practitioners and policy makers need to know about the financial market. In this 3 rd edition, Semmler has expanded further his excellent book that integrates real and financial activity. The new edition contains a whole new part consisting of four chapters as well as updates of the earlier chapters. Carl Chiarella, Professor of Quantitative Finance, The University of Technology, Sydney Front Matter....Pages i-xi Introduction....Pages 1-6 Front Matter....Pages 7-7 Money, Bonds and Interest Rates....Pages 9-15 Term Structure of Interest Rates....Pages 17-24 Front Matter....Pages 25-25 Theories on Credit Market, Credit Risk and Economic Activity....Pages 27-48 Empirical Tests on Credit Market and Economic Activity....Pages 49-76 Front Matter....Pages 77-77 Approaches to Stock Market and Economic Activity....Pages 79-88 Macro Factors and the Stock Market....Pages 89-95 New Technology and the Stock Market....Pages 97-102 Front Matter....Pages 103-103 Static Portfolio Theory: CAPM and Extensions....Pages 105-113 Consumption Based Asset Pricing Models....Pages 115-127 Asset Pricing Models with Production....Pages 129-135 Front Matter....Pages 137-137 Balance Sheets and Financial Instability....Pages 139-144 Exchange Rate Shocks, Financial Crisis and Output Loss....Pages 145-167 International Portfolio and the Diversification of Risk....Pages 169-178 Front Matter....Pages 179-179 Agent Based and Evolutionary Modeling of Asset Markets....Pages 181-187 Behavioral Models of Dynamic Asset Pricing....Pages 189-202 Dynamic Portfolio Choice Models: Theory....Pages 203-222 Dynamic Portfolio Choice Models: Empirics....Pages 223-239 Front Matter....Pages 241-241 Some Empirics on Asset Prices, Leveraging and Credit Crisis....Pages 243-253 Credit, Credit Derivatives, and Credit Default....Pages 255-269 Front Matter....Pages 241-241 The Mechanism of Recent Boom-Bust Cycles: Credit, Complex Securities, and Asset Prices....Pages 271-288 Financial Instability, Financial Culture and Financial Reform....Pages 289-296 Front Matter....Pages 297-297 Exercises....Pages 299-306 Appendices....Pages 307-311 Back Matter....Pages 313-333