This course provides a comprehensive analysis of firm-level investment decisions and their interaction with financial markets. It explores the role of investment in fixed capital and other productive assets, such as inventories, as key drivers of economic cycles. The course examines how variations in firm investment influence asset prices, affecting company valuations in both bond and stock markets.

Central to the course is the relationship between investment decisions and financial factors-such as the source, cost, and availability of finance. Students will engage with theoretical frameworks, including Tobin's q theory and models of investment under uncertainty, adjustment costs, and lumpy investments. In addition, the course reviews empirical literature on firm investment behavior, addressing topics such as investment under financial frictions and the challenges of investment during periods of economic uncertainty.

Through a combination of theory and empirical analysis, students will develop a deeper understanding of the interplay between investment, finance, and asset pricing.

Synchronous:

10 x 2 hour lectures on campus/online as appropriate for the course content
3 x 1 hour tutorials on campus/online

5 x 1 hour labs online
Asynchronous:
1 x 2-hour revision lecture

None

None

ILO

Reassessments are normally available for all courses, except those which contribute to the Honours classification. For non Honours courses, students are offered reassessment in all or any of the components of assessment if the satisfactory (threshold) grade for the overall course is not achieved at the first attempt. This is normally grade D3 for undergraduate students and grade C3 for postgraduate students. Exceptionally it may not be possible to offer reassessment of some coursework items, in which case the mark achieved at the first attempt will be counted towards the final course grade. Any such exceptions for this course are described below. 

Normally, the group-based assessment listed above cannot be reassessed.

This course aims to equip students with both theoretical and practical tools to analyze complex, dynamic problems in firm-level investment, with a focus on the interplay between investment, finance, and asset pricing. Specifically, the course aims to:

■ Develop students' proficiency in analytical and computational methods for addressing dynamic and stochastic models, particularly in the context of firm-level investment decisions.

■ Provide a comprehensive understanding of key theories of capital investment, including Tobin's q, investment under uncertainty, lumpy investment, and adjustment costs, while emphasizing the critical link between investment policy, financial markets, and asset pricing.

■ Introduce students to empirical approaches that test competing investment theories, enabling them to critically assess how well these models explain real-world firm behaviour under varying financial conditions.

By the end of this course students will be able to:

1. Formulate dynamic and stochastic economic problems in a logically coherent framework, demonstrating structured problem-solving skills.

2. Apply advanced analytical methods to solve dynamic and stochastic economic models, incorporating both theoretical and practical approaches.

3. Utilize numerical techniques to computationally solve complex dynamic economic models, including those related to firm investment and financial markets.

4. Demonstrate comprehensive knowledge of alternative investment theories and analyse their empirical approach.

5. Reason logically and work analytically in evaluating investment decisions and asset pricing models.

6. Communicate complex economic concepts effectively using written reports.

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.