A Master of Financial Economics is a postgraduate

master's degree A master's degree (from Latin ) is a postgraduate academic degree awarded by universities or colleges upon completion of a course of study demonstrating mastery or a high-order overview of a specific field of study or area of professional prac ...

American Economic Association The American Economic Association (AEA) is a learned society in the field of economics, with approximately 23,000 members. It publishes several peer-reviewed journals, including the Journal of Economic Literature, American Economic Review, an ...

(N.D.)
Graduate degrees in economics
/ref> focusing on theoretical

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

. Cecilia Seiter (2023)
''Earning A Master’s In Economics: What To Know''

Forbes ''Forbes'' () is an American business magazine founded by B. C. Forbes in 1917. It has been owned by the Hong Kong–based investment group Integrated Whale Media Investments since 2014. Its chairman and editor-in-chief is Steve Forbes. The co ...

The degree provides Nic Paton (2008)
''The art of finding a specialism''

The Independent ''The Independent'' is a British online newspaper. It was established in 1986 as a national morning printed paper. Nicknamed the ''Indy'', it began as a broadsheet and changed to tabloid format in 2003. The last printed edition was publis ...

a rigorous understanding of

financial economics Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial Economics", in Its co ...

, emphasizing the

economic An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

framework underpinning financial and investment decisioning. The degree is

postgraduate Postgraduate education, graduate education, or graduate school consists of academic or professional degrees, certificates, diplomas, or other qualifications usually pursued by post-secondary students who have earned an undergraduate (bachelor' ...

, and usually incorporates a

thesis A thesis (: theses), or dissertation (abbreviated diss.), is a document submitted in support of candidature for an academic degree or professional qualification presenting the author's research and findings.International Standard ISO 7144: D ...

or research component. Programs may be offered jointly by the

business school A business school is a higher education institution or professional school that teaches courses leading to degrees in business administration or management. A business school may also be referred to as school of management, management school, s ...

and the

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

department. Closely related degrees include the Master of Finance and Economics and the Master of Economics with a specialization in Finance. Since c. 2010 undergraduate degrees in the discipline have also been offered.

Structure

Masters in Financial Economics Alphabetical list of US graduate programs in economics
/ref> are usually one to one and a half years in duration, and typically include a

or research component. The nature of the degree differs by university. Generally, the degree is largely theoretical, and prepares graduates for

research Research is creative and systematic work undertaken to increase the stock of knowledge. It involves the collection, organization, and analysis of evidence to increase understanding of a topic, characterized by a particular attentiveness to ...

positions, for

doctoral A doctorate (from Latin ''doctor'', meaning "teacher") or doctoral degree is a postgraduate academic degree awarded by universities and some other educational institutions, derived from the ancient formalism '' licentia docendi'' ("licence to teach ...

study in

, or for roles in

applied economics Applied economics is the application of economic theory and econometrics in specific settings. As one of the two sets of fields of economics (the other set being the ''core''), it is typically characterized by the application of the ''core'', i.e ...

. Some are positioned as

professional degree A professional degree, formerly known in the US as a first professional degree, is a degree that prepares someone to work in a particular profession, practice, or industry sector often meeting the academic requirements for licensure or accreditatio ...

s, preparing graduates for

career A career is an individual's metaphorical "journey" through learning, work (human activity), work and other aspects of personal life, life. There are a number of ways to define career and the term is used in a variety of ways. Definitions The ...

s Georgina Torbet (2021)
Top Career Paths: Financial Economics
''INOMICS'' in investment banking and finance, and are comparable to the

Master of Science in Finance Master, master's or masters may refer to: Ranks or titles In education: *Master (college), head of a college *Master's degree, a postgraduate or sometimes undergraduate degree in the specified discipline * Schoolmaster or master, presiding offic ...

, though with an increased weighting towards economic theory. In some cases, programs are substantially quantitative and are largely akin to a Master of Quantitative Finance. The

curriculum In education, a curriculum (; : curriculums or curricula ) is the totality of student experiences that occur in an educational process. The term often refers specifically to a planned sequence of instruction, or to a view of the student's experi ...

is distributed between theory, applications, and modelling, with the emphasis on each differing by university and program, as outlined. * The theory component centres on

decision making In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either ra ...

under

uncertainty Uncertainty or incertitude refers to situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown, and is particularly relevant for decision ...

in the context of the

financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...

, and the resultant

and

financial model Financial modeling is the task of building an abstract representation (a model) of a real world financial situation. This is a mathematical model designed to represent (a simplified version of) the performance of a financial asset or portfolio o ...

s. The degree essentially explores how rational investors would apply

decision theory Decision theory or the theory of rational choice is a branch of probability theory, probability, economics, and analytic philosophy that uses expected utility and probabilities, probability to model how individuals would behave Rationality, ratio ...

to the problem of

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

. Investment under "

certainty Certainty (also known as epistemic certainty or objective certainty) is the epistemic property of beliefs which a person has no rational grounds for doubting. One standard way of defining epistemic certainty is that a belief is certain if and ...

" is initially considered ( Fisher separation theorem, "theory of investment value",

Modigliani–Miller theorem The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) is an influential element of economic theory; it forms the basis for modern thinking on capital structure. The basic theorem states that in the absence of taxes, bankruptcy cost ...

). Choice under uncertainty is then introduced, and the twin assumptions of

rationality Rationality is the quality of being guided by or based on reason. In this regard, a person acts rationally if they have a good reason for what they do, or a belief is rational if it is based on strong evidence. This quality can apply to an ab ...

and

market efficiency The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basi ...

lead to

modern portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of Diversificatio ...

and the CAPM, and to the Black–Scholes theory for

option pricing In finance, a price (premium) is paid or received for purchasing or selling options. The calculation of this premium will require sophisticated mathematics. Premium components This price can be split into two components: intrinsic value, and ...

. Where the program emphasizes economics, the curriculum is extended: it explores phenomena where these assumptions do not hold (

market microstructure Market microstructure is a branch of finance concerned with the details of how exchange occurs in markets. While the theory of market microstructure applies to the exchange of real or financial assets, more evidence is available on the microstruct ...

, behavioural finance) and it discusses models which are further generalised (

arbitrage pricing theory In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross (economist), Stephen Ross i ...

, continuous time finance /

Martingale pricing Martingale pricing is a pricing approach based on the notions of martingale and risk neutrality. The martingale pricing approach is a cornerstone of modern quantitative finance and can be applied to a variety of derivatives contracts, e.g. optio ...

) or extended ( Multi-factor models, models of the short rate, intertemporal CAPM, Black–Litterman model). Coursework here is often titled "

Asset pricing In financial economics, asset pricing refers to a formal treatment and development of two interrelated Price, pricing principles, outlined below, together with the resultant models. There have been many models developed for different situations, ...

" and "Corporate finance theory". Economics focused programs (often) separately cover

microeconomics Microeconomics is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce resources and the interactions among these individuals and firms. M ...

and /or

as foundational topics. * Application of the economic principles includes

asset allocation Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investm ...

and valuation, and covers specific

financial instrument Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form ...

s — such as

fixed income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the pr ...

equities Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion t ...

, derivatives, foreign exchange — and their portfolios. The aim here is twofold: firstly, to complement the theory; secondly, providing graduates with practical market knowledge. In the economics-focused degrees, this coverage may (will) be of secondary importance, while in the professional degrees it is a major component, and often includes separate course work in (practical)

corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...

, portfolio management and

financial risk management Financial risk management is the practice of protecting Value (economics), economic value in a business, firm by managing exposure to financial risk - principally credit risk and market risk, with more specific variants as listed aside - as well ...

Macroeconomics Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...

is also usually included; often though, as opposed to covering macroeconomic theory in general, the topics are applied and / or finance related with a focus on modelling and forecasting the relationships between asset classes and their expected returns. * The modelling curriculum complements both of the above. The theory is augmented via the study of

econometrics Econometrics is an application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics", '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...

, financial time series and

statistical model A statistical model is a mathematical model that embodies a set of statistical assumptions concerning the generation of Sample (statistics), sample data (and similar data from a larger Statistical population, population). A statistical model repre ...

ling, with a focus on the

empirical Empirical evidence is evidence obtained through sense experience or experimental procedure. It is of central importance to the sciences and plays a role in various other fields, like epistemology and law. There is no general agreement on how t ...

and statistical testing of economic theory,Birkbeck Financial Economics (MSc)
/ref> and on developing and documenting new econometric models. Students are taught to model using statistical packages such as SAS and EViews - and increasingly Python and R. The applications are reinforced through the computer based implementation of the more complex problems (often including numeric methods for option pricing,

Value at risk Value at risk (VaR) is a measure of the risk of loss of investment/capital. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically us ...

portfolio optimization Portfolio optimization is the process of selecting an optimal portfolio (asset distribution), out of a set of considered portfolios, according to some objective. The objective typically maximizes factors such as expected return, and minimizes c ...

and yield curve modeling). Here, though, the focus is typically on the ''concept'' as opposed to the modelling, ''

per se Per se may refer to: * '' per se'', a Latin phrase meaning "by itself" or "in itself". * Illegal ''per se'', the legal usage in criminal and antitrust law * Negligence ''per se'', legal use in tort law *Per Se (restaurant) Per Se is a New Amer ...

'', and may therefore be limited to the

spreadsheet A spreadsheet is a computer application for computation, organization, analysis and storage of data in tabular form. Spreadsheets were developed as computerized analogs of paper accounting worksheets. The program operates on data entered in c ...

environment:

Computational finance Computational finance is a branch of applied computer science that deals with problems of practical interest in finance.Rüdiger U. Seydel, ''Tools for Computational Finance'', Springer; 3rd edition (May 11, 2006) 978-3540279235 Some slightly diff ...

is the domain of specialized degrees, although some Financial Economics programs do emphasize mathematical modelling and programming. The programs require a

bachelor's degree A bachelor's degree (from Medieval Latin ''baccalaureus'') or baccalaureate (from Modern Latin ''baccalaureatus'') is an undergraduate degree awarded by colleges and universities upon completion of a course of study lasting three to six years ...

prior to admission, but do not (usually) require an undergraduate

major Major most commonly refers to: * Major (rank), a military rank * Academic major, an academic discipline to which an undergraduate student formally commits * People named Major, including given names, surnames, nicknames * Major and minor in musi ...

in finance or economics; a typical requirement is exposure to ( multivariable)

calculus Calculus is the mathematics, mathematical study of continuous change, in the same way that geometry is the study of shape, and algebra is the study of generalizations of arithmetic operations. Originally called infinitesimal calculus or "the ...

and differential equations,

statistics Statistics (from German language, German: ', "description of a State (polity), state, a country") is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of data. In applying statistics to a s ...

and

probability theory Probability theory or probability calculus is the branch of mathematics concerned with probability. Although there are several different probability interpretations, probability theory treats the concept in a rigorous mathematical manner by expre ...

, and

linear algebra Linear algebra is the branch of mathematics concerning linear equations such as :a_1x_1+\cdots +a_nx_n=b, linear maps such as :(x_1, \ldots, x_n) \mapsto a_1x_1+\cdots +a_nx_n, and their representations in vector spaces and through matrix (mathemat ...

. Many programs include a review of these topics as an admission- or preliminary course.Manchester's "Pre-Session" Mathematics & Statistics
MA in Financial Economics, IDC Herzliya
/ref>

Comparison with other qualifications

There is some overlap with programs in

financial engineering Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathe ...

computational finance Computational finance is a branch of applied computer science that deals with problems of practical interest in finance.Rüdiger U. Seydel, ''Tools for Computational Finance'', Springer; 3rd edition (May 11, 2006) 978-3540279235 Some slightly diff ...

and

mathematical finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling in the financial field. In general, there exist two separate branches of finance that req ...

; see Master of Quantitative Finance (MQF). These degrees aim to train practitioners and "quants" — i.e. specialists in derivatives,

and

risk analysis In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...

— as opposed to

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

s, and their curricula are therefore weighted toward

stochastic calculus Stochastic calculus is a branch of mathematics that operates on stochastic processes. It allows a consistent theory of integration to be defined for integrals of stochastic processes with respect to stochastic processes. This field was created an ...

numerical methods Numerical analysis is the study of algorithms that use numerical approximation (as opposed to symbolic manipulations) for the problems of mathematical analysis (as distinguished from discrete mathematics). It is the study of numerical methods t ...

, simulation techniques and programming, and are quantitative (well) beyond the level of the Financial Economics degree. Entrance requirements are similarly more mathematical. On the other hand, coverage of financial and economic theory, and econometrics, while significant, is comparatively secondary. As mentioned, some Financial Economics programs are substantially quantitative; these differ little from the MQF. The overlap with general finance degrees, such as a

(MSF) or an M.B.A. in finance, is further limited, particularly where the Financial Economics program is theory oriented. These degrees are focused on financial management,

and

investment management Investment management (sometimes referred to more generally as financial asset management) is the professional asset management of various Security (finance), securities, including shareholdings, Bond (finance), bonds, and other assets, such as r ...

, and are practice oriented with limited exposure to the underlying economic theory. However, since these courses train graduates in the ''use'' of the models developed in Financial Economics, the theory is (sometimes) covered ''Determine If a Master's in Finance Is the Right Move''
usnews.com, Feb. 9, 2015. in the context of a (basic) understanding of model assumptions. Similar comments apply to professional certifications such as the

Chartered Financial Analyst The Chartered Financial Analyst (CFA) program is a postgraduate professional certification offered internationally by the US-based CFA Institute (formerly the Association for Investment Management and Research, or AIMR) to investment and financia ...

(CFA) designation. The Master of Finance (M.Fin.) and M.Sc. Finance, as opposed to the ''MSF'', have a significant theory component (as well as quantitative component), and largely overlap with the Masters in Financial Economics.

Notes

References

{{Academic degrees Financial economics

Finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

Economics education

Structure

Comparison with other qualifications

See also

Notes

References