Financial economics is the branch of economics concerned with the workings of financial markets, such as the stock market, and the financing of companies.

It attempts to answer questions such as:

• How are the prices of financial assets, such as shares and bonds, determined?
• What are the effects of a company choosing different methods of financing its operations, such as issuing shares or borrowing?
• What portfolio of assets should an investor hold in order to best meet her objectives?

Key concepts used in financial economics include:

• Arbitrage
• Efficient markets theory
• Risk

See also: Financial mathematics, Mathematical economics

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