You are required to construct an essay of 800 words expressing your personal views as to the effectiveness of the market in setting prices.

Overview

You are required to construct an essay of 800 words expressing your personal views as to the effectiveness of the market in setting prices.

The essay is aimed at providing you with the opportunity to create an intellectually constructed essay that is well-written. Marks will therefore be awarded for “style” as well as for structure and content.

Course Learning outcomes

This assessment is aligned with:

• CLO1: Appraise the nature and key components of financial systems both domestically and globally.
• CLO2: Evaluate the concepts of time value of money to various valuation models including debts and equities.
• CLO3: Interpret the concept of diversification and examine the impact on the risk and return relationship.
• CLO4: Analyse the characteristics and functions of arbitrage and derivatives and how they are applied to risk management strategies.

Assessment details

The discussion topic for the first assessment is Sir Isaac Newton’s quote:

“I can calculate the motion of heavenly bodies, but not the madness of people.”

This quote was his response to the collapse of South Sea Bubble in 1720, in which he lost £20,000 (equivalent to approximately £5milion in 2022). His remarks suggest that investors be irrational during the bubble period when they are more likely to follow each other (‘herding’). But over the time, a few months to possibly many years, the psychology factors are subtracted out and stock prices come to reflect the value of the company in relation to economic fundamentals.

You are required to compose an essay of 800 words expressing your personal views as to the stock market bubble. Specifically, your views should be developed based on the review of Week 1 and 2 learning materials including related readings, discussions, and activities.

In week 1 and 2, we discuss a short history of stock markets, including the unfolding of bubble-crisis (‘boom-bust’) cycle in the recent time. In your essay, our expectation is that you discuss the investors’ experience and behaviour prior to, during and post a bubble. You may select a bubble period in the past three decades to demonstrate your viewpoints.

The essay is aimed at providing you with the opportunity to create an intellectually constructed essay that is well-written. Marks will therefore be awarded for “style” as well as for structure and content.

Format/structure for the assignment is as follow:

1. Introduction (you can introduce the bubble period you choose (e.g. Stock market) and provide some background information/context)
2. Investors' experience and behaviour (you can have sub-sections 2.1, 2.2, 2.3 to describe the pre-, during, and post period; you can also have some sub-sample description such as retail investors VS institutional investors; if you choose to look at the international market rather than a single country, you can have developed countries VS developing countries; etc). Please support the argument by using graphs from reliable sources.
3. Your personal insights/explanations or any takeaways.
4. References: please follow Harvard referencing style.