The Economics of Financial Markets presents a concise overview of capital markets, appropriate for advanced undergraduates and for beginning graduate college students in financial economics. Following a short overview of monetary markets – their microstructure and the randomness of stock market costs – this textbook explores how the economics of uncertainty may be utilized to financial decision-making. The mean-variance mannequin of portfolio choice is mentioned, with evaluation extended to the capital asset pricing model . Arbitrage performs a pivotal function in finance and is studied in a big selection of contexts, including the APT model of asset prices. Methods for the empirical evaluation of CAPM and APT are additionally discussed, along with the volatility of asset prices, the intertemporal CAPM and the equity premium puzzle. An analysis of bond contracts leads into an assessment of theories of the term construction of interest rates.