We began our voyage looking at the basic building blocks of economics: mathematics, models, and methodology. Then, in the last chapter, we looked at the basics of small submarkets. The path now leads us to a specialized market, the capital market. Unlike physical goods markets, it is mainly invisible with relatively few moving parts. However, it is global, it has many complexities, and few theories capture its vast underlying foundation. This chapter looks at financial economic theory. It discusses capital markets, introduces investment management concepts, and presents capital asset pricing theories.
In market economies, the allocation of economic resources is the outcome of personal decisions. Prices ...
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