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The questions addressed by the discipline are typically framed in terms of "time, uncertainty, options and information" {Link without Title} .
SUBJECT MATTER Given its scope, as above, financial economics tends to deal with the workings of Financial Markets , such as the Stock Market , and the Financing of Companies , and includes the following subject areas: Budgeting, saving, investing, borrowing, lending, insuring, hedging, diversifying, and asset management. Because the future is never known with certainty, a central concern of financial economics is the impact of uncertainty on resource allocation. Financial economics thus attempts to answer questions such as:
ASSUMPTIONS Financial economics is based on several Assumptions - chief amongst these, that financial decision makers are rational (see Homo Economicus ; Efficient Market Hypothesis ). However, recently, researchers in Experimental Economics and Experimental Finance have challenged this assumption Empirical ly. Further, these assumptions are challenged - Theoretical ly - by Behavioral Finance , a discipline primarily concerned with the rationality, or lack thereof, of economic agents. Other common assumptions include market prices following a Random Walk , or asset returns being Normally Distributed . Empirical evidence suggests that these assumptions may not hold, and in practice, traders and analysts, and particularly Risk Managers , frequently modify the "standard models". IMPORTANT CONCEPTS
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EXTERNAL LINKS AND REFERENCES Theory
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