Capital markets, investment and asset pricing

Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. In capital markets stock or bond issues are sold to investors. Therefore, theory of capital markets is closely linked with the theory of asset pricing.

Research in this area deals with calculating theoretically, and estimating empirically, returns on different assets and the relationship with diversifiable and non-diversifiable market risks. It includes research on microfoundations of asset pricing theory, the arbitrage pricing theory and its use for the development of different models of pricing financial derivatives, the most common examples of derivatives being European call and put options, as well as risk measurement and risk management and sequential portfolio choice.