Investments & Portfolio Management

Objectives

  • To provide an understanding of security valuation and portfolio management, focusing on equities and fixed-interest securities.
  • To emphasise the principles underlying the valuation of bonds and stocks.
  • To discuss the management of equity and bond portfolios, including the application of active and
  • passive portfolio management strategies.
  • To introduce related institutional aspects.

Learning outcomes

Knowledge and understanding of:

  • the Markowitz portfolio selection model
  • the Capital Asset Pricing Model
  • factor models, including the Arbitrage Pricing Theory and the Fama-French 3-factor model
  • the empirical evidence about the nature of security returns
  • the theories of active and passive portfolio management
  • how investment returns are measured
  • the basic principles of performance evaluation
  • portfolio performance attribution analysis
  • calculating the various measures of rates of return on bonds
  • the relationship between bond prices and interest rates
  • the basic principles of bond valuation and their application to instruments traded in the fixed income securities markets
  • the different types of instruments traded, and the terminology used, in the UK and other international bond markets
  • the concept of duration and its application to passive bond portfolio management strategies
  • the use of active bond management portfolio strategies
  • hedge funds and other alternative investments.

Division: AAF

Coordinator: Professor Chris Veld

 

 


This module information is representative of what is included in the module in a given year. Details of actual reading, lectures and coursework may vary year to year and will be available at the beginning of the semester.

Investments & Portfolio Management

Semester Spring
Level 11
Credit Value 20
Module Co-ordinator Dr Patrick Herbst
Contact Hours The module will be delivered by means of lectures and smaller group seminars (for problem solving and group presentations). 
Assessment Assessment will comprise a one and a half hours' multiple choice test (50 per cent of the module grade) and a final examination (50 per cent of the module grade) of one and a half hours' duration. The multiple choice test and the final exam will contain both numerical and discursive questions and will enable students to demonstrate their knowledge of the module material and the application of key concepts to practical problem-solving.

 

Objectives

The module aims to provide an understanding of investments and portfolio management.  The first part of the course is concerned principally with the valuation of equities and the management of equity portfolios. This part builds on the basic principles which underpin modern portfolio theory and models of asset pricing. These principles are then applied to issues of performance measurement and active portfolio management. The second part primarily focuses on fixed-income securities. It explains the principles of bond valuation, introduces the concepts underlying the term structure of interest rates, and discusses the management of bond portfolios. Other aspects covered in the second part include Alternative Investments and the International Diversification of Investments. Upon completion of the module students will have met learning outcomes from levels I, II and III of the CFA® Program Candidate Body of Knowledge in respect of Equity Investments, Alternative Investments, Fixed Income and Portfolio Management.

 

Learning outcomes

Knowledge and understanding of:

  1. Explain and apply concepts related to risk such as risk aversion, fair games and indifference curves.
  2. Explain and apply utility theory and its relevance to investment theory.
  3. Explain and apply alternative risk measures, i.e. probability of loss, expected value of loss, and semi-variance.
  4. Explain and calculate expected return, variance (standard deviation), covariance and correlation coefficient both for individual stocks and for portfolios of stocks.
  5. Describe the Capital Asset Pricing Model and Arbitrage Pricing Models and apply each model to the measurement of equity returns.
  6. Explain the three different ways of estimating factors in factor models (factor analysis, macro economic factors, firm characteristics) and specify the advantages and disadvantages of these approaches.
  7. Explain the different types of market efficiency.
  8. Explain the strengths and weaknesses of behavioural finance as well as it most important characteristics.
  9. Explain the different ways to value shares of common stock.
  10. Describe and apply price/earnings ratio models.
  11. Explain the advantages and disadvantages of price/earnings ratio models.
  12. Describe hedge funds and other alternative investments including their potential contribution to portfolio management.
  13. Describe the basic principles underlying the conventional theory of performance evaluation.
  14. Apply performance attribution procedures in order to partition portfolio performance according to asset allocation, sector selection and security selection decisions.
  15. Appreciate the value of market timing and how it may be measured.
  16. Explain the advantages and disadvantages of both active and passive portfolio management.
  17. Understand the merits and disadvantages of international diversification.
  18. Understand various characteristics of bonds and different measures of bond returns.
  19. Appreciate the principles of bond pricing.
  20. Calculate the price of bonds.
  21. Understand spot, zero coupon, forward and par interest rates.
  22. Understand the term-structure of interest rates.
  23. Understand duration, modified duration and convexity and to appreciate their impact on the variability of bond prices.
  24. Comprehend the different terminologies and types of financial instruments which are traded on international bond markets.
  25. Understand different strategies related to bond portfolio management.

Generic Skills:

  • methodical working through planning and prioritisation
  • oral presentation skills in seminar presentations
  • team working skills in group work for seminar assignments
  • effective time management and the ability to work under pressure

Cognitive Skills:

  • Numerical skills, through the manipulation and interpretation of financial data, and application of financial pricing concepts
  • Analytical skills, through the analysis of information in order to solve structured problems
  • The ability to identify arguments and think critically

 

Division: Accounting & Finance

 

 


This module information is representative of what is included in the module in a given year. Details of actual reading, lectures and coursework may vary year to year and will be available at the beginning of the semester.

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