Asset prices, booms and recessions

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The financial market meltdown from 2007 to 2009 has significantly challenged the field of financial economics. This text emphasizes the dynamic interplay between financial markets and economic activity, covering the money and bond markets, credit market, stock market, and foreign exchange market, as well as the roles of firms, banks, households, governments, and countries. It explores how economic activities influence asset prices and market volatility, and conversely, how asset prices and financial crises impact economic activities. The book delves into advanced topics such as the term structure of interest rates, credit derivatives, credit risk, portfolio theory, multi-agent approaches, capital asset pricing beyond consumption models, and dynamic portfolio decisions. A new section specifically addresses the 2007-2009 financial crisis, highlighting empirical evidence from episodes of financial instability in the U.S., Latin America, Asia, and the Euro area. Overall, it serves as a crucial resource for researchers and practitioners in the financial sector, providing insights into the financial-real interaction and essential knowledge for practitioners and policymakers regarding the financial market.