Money and Capital Markets
Professor John W. Sell

Note: Readings marked with an asterisk (*) are required for this course.

Text:

Fabozzi, Modigliani, Jones, and Ferri:  Foundations of Financial Markets and Institutions 3rd ed. (Upper Saddle River, NJ: Prentice Hall, 2002)

The Wall Street Journal provides many practical examples of course material and is a good resource for a variety of business- and finance-related topics.  You can subscribe online to both the web and print editions by clicking this link.

A Classic:

Marcia Stigum, The Money Market rev. ed. (Homewood IL: Dow Jones-Irwin, 1983)

Commonly Used Abbreviations:

D & G = Herbert E. Dougall and Jack E. Graumnitz, Capital Markets and Institutions 4th ed. (Englewood Cliffs: Prentice-Hall, 1980)
P & S = Richard A. Posner and Kenneth E. Scott, Economics of Corporation Law and Securities Regulation (Boston: Little Brown and Company, 1980)
Sharpe = William F. Sharpe and Gordon Alexander, Investments 4th ed. (Englewood Cliffs: Prentice-Hall, 1990)

AER = American Economic Review
JF = Journal of Finance
JLE = Journal of Law & Economics
JMCB = Journal of Money, Credit, and Banking

I. Introduction

*Text: Chapter 1
Barzel, Y.: "Transactions Costs: Are They Just Costs?" Journal of Institutional & Theoretical Economics (March 1985) pp.4-16
Benston, G. and Smith, C.: "A Transactions Cost Approach to the Theory of Financial Intermediaries" JF (May 1976)
D & G: Chapters 1 and 2

II. The Theory of Exchange and Markets

*Text: Chapter 2
*Hayek, F: "The Use of Knowledge in Society" AER (September 1945)
Alchian, A.: "Why Money?" JMCB (Februany 1977) pp. 133-40
Bailey, M.: "Approximate Optimality of Aboriginal Property Rights," JLE (April 1992) pp. 183-98
Campbell, T. and Kracaw, W.: "Information Production, Market Signaling, and the Theory of Financial Intermediation" JF (September 1980) pp. 863-82
Demsetz, H.: "Toward a Theory of Property Rights" AER (May 1967) pp.347-73
ODriscoll, G: Economics as a Coordination Problem (Menlo Park, CA: Institute for Humane Studies, 1977) Chapter 2

III. The Money Market

*Text: Chapters 4, 16, 20 (pp. 383-86), 22
Benston, G.: "The Optimal Bank Structure: Theory and Evidence" Journal of Bank Research (Winter 1973)
Black, F.: "Bank Funds Management in an Efficient Market" Journal of Financial Economics 2 (1975) pp. 323-39
Hall, W.: "How the American System of Bank Regulation Developed" The Banker (September 1974) pp. 1101-07
Hurley, E.: "The Commercial Paper Market" Federal Reserve Bulletin (June 1977) pp. 525-36
Lucas, C.; Jones, M.; and Thurston, T.: "Federal Funds and Repurchase Agreements" Quarterly Review (Federal Reserve Bank of New York, SummerÝ1977) pp. 33-48
Melton, W.: "The Market for Large Negotiable CD's" Quarterly Review (Federal Reserve Bank of New York, Winter 1977-78) pp. 27-34
Miller, M. and Orr, D.: " A Model of the Demand for Money by Firms" Quarterly Journal of Economics (August 1966)
Stigum: Chapters 3,4,7,12,14,15,17

IV. The Insurance Market and Pension Funds

*Text: Chapters 7, 9
Aharoni, Y.: The No Risk Society (Chatham, NJ: Chatham House Publishers, 1981)
Bickelhaupt, D.: General Insurance (Homewood IL: Richard D. Irwin, 1979)
Biger, N. and Kahane, Y.: "Risk Considerations in Insurance Ratemaking" Journal of Risk and Insurance (March 1978) pp 121-32
D & G: Chapter 5
Friedman, M. and Savage, L.: "The Utility Analysis of Choices Involving Risk" in Stigler and Boulding (eds.) AEA Readings in Price Theory (Homewood, IL: Richard D. Irwin, 1952) pp. 57-96
Ippolito, R.: "The Effects of Price Regulation in the Automobile Insurance Industry: JLE (April 1979)
Landes, E.: "Insurance, Liability, and Accidents" JLE (April 1982)
Lloyds of London, a movie starring Tyrone Power (1940)
Joskow, P.: "Cartels, Competition, and Regulation in the Property-Liability Insurance Industry" Bell Journal (Autumn 1973)
Tepper, I.: "Risk vs. Return in Pension Fund Investment" Harvard Business Review (March/April 1977) pp. 100-07

V. The Market for Real Estate

*Text: Chapters 23, 24
Arcelus, F. and Meltzer, A.: "The Market for Housing Services" JMCB (February 1973)
Brunner, K. (ed.): Government Credit Allocation: Where Do We Go From Here? (San Francisco: Institute for Contemporary Studies, 1975)
D & G: Chapter 12
Haney, R.: "An Empirical Investigation of the Relative Attractiveness of the GNMA Pass-Through Security" Quarterly Review of Economics and Business (Winter 1976) pp. 79-89
McConnell, H.: "Mortgage Company Bids on the GNMA Auction" Journal of Bank Research (Winter 1977) pp. 294-302
Thurow, L.: "Proposals for Rechanneling Funds to Meet Social Priorities" in Policies for a More Competitive Financial Sector (Federal Reserve Bank of Boston, 1972)

VI. The Markets for Debt and Equity

B. The Markets for Private Debt

*Text: Chapters 20, 21
Feder, G. and Knud, R.: "Risk Assessment and Risk Premiums in the Eurodollar Market" JF (June 1982) pp. 679-91
Fisher, I.: The Theory of Interest (New York: Augusts Kelly, 1970)
Fisher, L.: "Determinants of Risk Premiums on Corporate Bonds" Journal of Political Economy (June 1959) pp. 217-37
Sharpe: Chapter 12, 13, and pp. 87-109
West, R.: "An Alternative Approach to Predicting Corporate Bond Ratings" Journal of Accounting Research (Spring 1970)
Wood, J.: "Expectations and the Demand for Bonds" AER (September 1969) pp.Ý522-30

C. The Stock Markets

*Text: Chapters 18, 19
Ibbotson, R.: "The Performance of Common Stock New Issues" Journal of Financial Economics (September 1975)
Jarrel, G.: "The Economic Effects of Federal Regulation on the Market for New Security Issues" JLE (December 1981)
Logue, D. and Jarrow, R.: "Negotiated vs. Competitive Bidding in the Sale of Securities..." Financial Management (Autumn 1978)
Marsh, P.: "Equity Rights Issues..." JF (September 1979)
Moore, T.: "Stock Market Margin Requirements" Journal of Political Economy (April 1966)
P & S: Chapters 6, 10, 11
Sharpe: Chapters 15 and 16
Smith, C.: "Alternative Methods for Raising Capital" Journal of Financial Economics (December 1977)
Teweles, R. and Bradley, E.: The Stock Market 4th ed. (New York: John Wiley & Sons, 1982) Parts 1, 2, 3

VII. Futures and Options Markets

*Text: Chapters 26, 27
Mayo, Herbert: Investments: An Introduction (Chicago: Dryden Press, 1984) Chapter 23.
Fama, E.: "Forward Rates as Predictors of Future Spot Rates" Journal of Financial Economics (June 1976) pp. 361-77
Sharpe: Chapters 18 and 19
Stoll, H. and R. Whaley: Futures and Options (Cincinnati: Southwestern Publishers, 1993)
Welch, W.: Strategies for Put and Call Options Trading (Cambridge, MA: Winthrop Publishers, 1982)