Master of Financial Economics

A master’s degree in financial economics provides an understanding of theoretical finance and the underlying economic framework.^[1] The degree is postgraduate, and may incorporate a thesis or research component. Programs are often a joint offering by the business school and the economics department; see List of master's degrees in financial economics. Closely related degrees include the "Master of Finance and Economics" ^[2] and the "Master of Economics with a specialization in Finance / Financial Economics". ^[3]

The nature of the degree differs by university. Often, the degree is largely theoretical, and prepares graduates for research positions, for doctoral study in economics, or for roles in applied economics.^[4] Several are positioned as professional degrees, preparing graduates for careers in banking and finance,^[5] and are comparable to the Master of Science in Finance, though with an increased weighting towards theory. In some cases, programs are substantially quantitative^[6] and are largely akin to a Master of Quantitative Finance.

Structure

Masters in Financial Economics are usually one to one and a half years in duration, and often include a thesis component. The programs require a bachelor's degree prior to admission, but do not (usually) require an undergraduate major in finance or economics; a usual requirement is exposure to calculus, statistics and probability, and sometimes linear algebra and differential equations. Many programs include a review of these topics as an initial bridging / refresher course.

The curriculum is distributed between theory, applications and modelling, with the emphasis on each differing by university, as above.

• The theory component centres on decision making under uncertainty in the context of the financial markets, and the resultant economic and financial models.^[7] The degree essentially explores how rational investors would apply decision theory to the problem of investment. Investment under "certainty" is initially considered (Fisher separation theorem, "theory of investment value", Modigliani-Miller theorem). "Choice under uncertainty" is then introduced, and the twin assumptions of rationality and market efficiency lead to modern portfolio theory (the CAPM), and to the Black Scholes theory for option valuation. Where the program emphasizes economics, the curriculum is extended: it explores phenomena where these assumptions do not hold (noise trading, market microstructure, behavioural finance) and it discusses models which are further generalised (Fundamental theorem of arbitrage-free pricing, arbitrage pricing theory) or extended (Multi-factor models, models of the short rate, Intertemporal CAPM, Black–Litterman model). The coursework here is often titled "Asset pricing" and "Corporate finance theory".

• Application of the economic principles includes valuation and asset allocation, and covers specific financial instruments - such as fixed income, equities, derivatives, foreign exchange - and their portfolios. The aim here is twofold: firstly, allowing students to further explore the theory; secondly, providing graduates with practical market knowledge. In the economics-focused degrees, this coverage is often of secondary importance, while in the professional degrees it is a major component, and often includes separate course work in (practical) corporate finance, portfolio management and financial risk management. Macroeconomics is also usually included; often though, as opposed to covering macroeconomic theory in general, the topics are applied and / or finance related with a focus on modelling and forecasting the relationships between asset classes and their expected returns.^[8]

• The modelling curriculum complements both of the above. The theory is augmented via the study of econometrics, financial time series and statistical modelling, with a focus on the empirical and statistical testing of economic theory,^[9] and on developing and documenting new econometric models. Students are taught to model using statistical packages such as SAS. The applications are reinforced through the computer based implemention of the more complex problems (often including numeric methods for option pricing, Value at risk, constructing efficient portfolios and yield curve modeling). Here, though, the focus is typically on the concept as opposed to the modelling, per se, and is therefore (often) limited to the spreadsheet environment:^[10][4] Computational finance is the domain of specialized degrees, although some Financial Economics programs^[6][2][11] do emphasize mathematical modelling and programming - see further below.

Comparison with other qualifications

There is some overlap with programs in financial engineering, computational finance and mathematical finance - see Master of Quantitative Finance (MQF). These degrees aim to train practitioners and "quants" - i.e. specialists in derivatives, fixed income and risk analysis - as opposed to economists, and their curricula are therefore weighted toward stochastic calculus, numerical methods, simulation techniques and programming, and are quantitative (well) beyond the level of the Financial Economics degree. At the same time, their coverage of financial theory, and of econometrics, while also significant, is (often) secondary^[12] Entrance requirements are similarly more mathematical. As mentioned, some Financial Economics degrees are substantially quantitative and differ very little from the MQF.

The overlap with general finance degrees such as the Master of Science in Finance (M.S.F.), or with an M.B.A. in finance, is further limited, particularly where the Financial Economics program is theory oriented. These degrees are focused on financial management, corporate finance and investment management, and are practice oriented with limited exposure to the underlying economic theory. Note though, that since these courses train graduates in the use of the models developed in Financial Economics, the theory is (sometimes) covered in the context of (a high level) understanding of model assumptions. Similar comments apply to professional certifications such as the Chartered Financial Analyst (CFA) designation. Note also, that the Master of Finance (M.Fin.) degree, as opposed to the MSF, has a significant theory component (as well as quantitative component), and is largely identical to the Master's in Financial Economics.

See also

• List of master's degrees in financial economics
• Master of Finance
• Master of Economics
• Master of Quantitative Finance
• Category:Professional certification in finance

References

1. ^ "U of T : Economics : Master of Financial Economics Program (MFE)". Mfe.economics.utoronto.ca. http://mfe.economics.utoronto.ca/about.html. Retrieved 2010-10-19. 
2. ^ ^{a b} "MSc (Econ) Finance and Economics | School of Economics and Finance, Queen Mary, University of London". Econ.qmul.ac.uk. http://www.econ.qmul.ac.uk/postgraduate/msc/financeandeconomics/. Retrieved 2010-10-19. 
3. ^ Master of Economics with a specialisation in Financial Economics, Macquarie University
4. ^ ^{a b} "The Department Of Economics And Econometrics". uj.ac.za. http://www.uj.ac.za/economics/FieldsofStudy/Postgraduate/Masters/MComFinancialEconomics/tabid/12745/Default.aspx. Retrieved 2010-10-19. 
5. ^ "Economics Department, College of Liberal Arts and Social Sciences, YSU". As.ysu.edu. http://www.as.ysu.edu/~econ/. Retrieved 2010-10-19. 
6. ^ ^{a b} "MS in Quantitative Financial Economics". Spears.okstate.edu. http://spears.okstate.edu/finance/degrees/msqfe. Retrieved 2010-10-19. 
7. ^ Outline for ‘Financial Economics’, Royal Holloway, University of London
8. ^ See for example: Macroeconomics for Financial Markets, University College Cork; MSc in Financial Economics, Oxford University.
9. ^ Birkbeck Financial Economics (MSc)
10. ^ "City University, London - Modules: MSc Financial Economics". city.ac.uk. http://www.city.ac.uk/economics/finance/modules.html. Retrieved 2010-11-05. 
11. ^ "Master in Finance - Bendheim Center for Finance - Princeton University". Princeton.edu. 2010-03-18. http://www.princeton.edu/bcf/graduate/. Retrieved 2010-10-19. 
12. ^ Resolution to Establish a Program Leading to the Master of Science In Financial Economics, Columbia University Senate

External links

• Postgraduate finance degrees & Specialised courses in economics, courses-careers.com
• Getting an MBA vs. a Master's in Finance or Economics, mbapodcaster.com
• Careers in Financial Economics, claremontmckenna.edu
• Career opportunities in financial economics, stkate.edu