ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS"

Transcription

1 ATHENS UNIVERSITY OF ECONOMICS AND BUSINESS Masters in Business Administration (MBA) Offered by the Departments of: Business Administration & Marketing and Communication PORTFOLIO ANALYSIS AND MANAGEMENT (ΑΝΑΛΥΣΗ ΚΑΙ ΙΑΧΕΙΡΙΣΗ ΧΑΡΤΟΦΥΛΑΚΙΟΥ) Lecturer: Office: Tel: Professor Manolis G. Kavussanos 5 th floor, Antoniadou Wing, Patission 76, Athens , EDUCATIONAL AIM The course aims to provide a good understanding of the principles of portfolio theory and investment management. Both theoretical and practical aspects of risk and return measurement for portfolios and individual securities are examined. In the process, the concepts of diversification, portfolio selection, construction and evaluation are analysed. Various equilibrium models of asset prices, against which market prices of securities are compared, are put forward. Portfolio performance evaluation is part of the course. EDUCATIONAL OBJECTIVES Introduce students to the nature and role of portfolio theory in investment analysis. Familiarize students with the portfolio selection and management process. Examine recent developments in the theory and practice of portfolio management. The course will make it possible for participants: To acquire a clear understanding of portfolio risk and return characteristics, use of diversification for risk reduction, determination of efficient and optimal portfolios with and without short-selling restriction, evaluation of portfolio performance and role of asset pricing models for pricing securities. To be able to seek positions in the asset management, research or equity (fixed income) analysis departments of large financial institutions. LEARNING OUTCOMES On completing the course participants will: Have an understanding of the investment process, starting from risk and return characteristics of individual assets and portfolios through to optimal portfolio selection and performance evaluation. Understand the determinants of asset prices, asset pricing models and implications of their assumptions on contemporary investment management process.

2 Be able to address and tackle issues such as: * Estimation of return, systematic and non-systematic risk of a portfolio * Identification of efficient portfolios * Assessing risk/return preferences of investors and identification of optimal portfolios through the use of utility theory * Application of portfolio performance measures in portfolio evaluation process. * Forming and developing diversification strategies to hedge market risk and reduce company specific risk of a portfolio. * Pricing assets by using asset pricing models Be able to contribute to the shaping, implementation and evaluation of a portfolio management strategy. THEMATIC AREAS Thematic area 1 Introduction to investments Utility function. Portfolio risk and return Thematic area 2 Financial Markets Financial Institutions The Investment Environment Thematic area 3 Market Efficiency Thematic area 4 Markowitz: The concept of diversification and the efficient frontier Thematic area 5 Markowitz: Riskless lending and borrowing and the efficient set Thematic area 6 Capital Asset Pricing Model (CAPM) Thematic area 7 Single Index Model (SIM) Thematic area 8 Arbitrage Pricing Theory (APT) Thematic area 9 Portfolio performance evaluation Thematic area 10 International diversification BRIEF DESCRIPTION OF THEMATIC AREAS Introduction to investments Reasons for investing, Time value of money, Compounding, Discounting, Capital budgeting techniques, NPV, IRR, Examples of NPV and IRR, Investment Environment, Financial assets, Money markets vs. capital markets, Defining risk and return, Risk and return trade-off, Stock market indices, Financial Markets and their characteristics Utility function. Portfolio risk and return Defining the utility function, Diminishing marginal utility, Diminishing marginal substitutability, Expected utility model under uncertainty, Risk aversion, risk

3 seeking and risk neutrality, Indifference curves, Quadratic utility function, Absolute and relative risk aversion, Mean-variance (Markowitz) approach for evaluation of risky securities, Calculation of the expected return of a portfolio, Calculation of the standard deviation of a portfolio, Covariance, Correlation coefficient, Variance-Covariance matrix Concept of diversification and efficient frontier Diversification and correlation between two assets, Risk reduction through portfolio formation, Diversification and number of assets in the portfolio, Unique risk diversification vs. market risk averaging, Efficient set theorem, Minimum variance set, Minimum variance set vs. efficient set, Reasons for concave shape of the efficient frontier, Selection of the optimal portfolio Riskless lending and borrowing and the efficient set Definition of the risk-free asset, Assumption of the same risk-free borrowing and lending rate, Investing in a risk-free asset and risky asset, Investing in a risk-free asset and a risky portfolio, Determining the efficient frontier when risk-free lending is allowed, Identifying optimal portfolio when risk-free lending is allowed, Introduction of risk-free borrowing, Determining the efficient set and selection of the optimal portfolio in the presence of risk free lending and borrowing, Efficient set under different borrowing and lending rates Capital Asset Pricing Model (CAPM) Assumptions of the CAPM, Implications of the assumptions, Defining the market portfolio and problems associated with it, Definition and derivation of Capital Market Line (CML), Definition and derivation of Security Market Line (SML), CAPM equation, Identification of overvalued and undervalued securities, Practical issues in CAPM: estimation of the SML, estimation of beta, reality of the assumptions Single Index Model (SIM) Single index model vs. Markowitz model, Assumptions of the model, Formulating single index model, Beta, Estimating betas and intercepts Return and risk of a security in the single index model, Return and risk of a portfolio in the single index model, single index model and concept of diversification, Inputs required in the single index model vs. inputs required in the Markowitz model Asset Pricing Theory (APT) Assumptions of APT and comparison with CAPM, Arbitrage process, Single factor model, Arbitrage portfolios, Equilibrium asset pricing equation, Two factor model, Multiple factor model, Identification of factors in APT, A synthesis of CAPM and APT, Relationship between betas and factor sensitivities, Is CAPM or APT more accurate asset pricing model Portfolio performance evaluation Identifying the benchmark portfolio, Sharpe s Reward to Variability Ratio (RVAR), derivation and interpretation, Treynor s Reward to Volatility ratio (RVOL), derivation and interpretation, Appropriateness of RVAR and RVOL in the case of non-perfect diversification, Jensen s portfolio performance measure, derivation and interpretation, Ranking of portfolios using the three measures, Comparisons and limitations of the three measures International diversification The case for international diversification, International stock exchange markets, Emerging markets, Risk from foreign investing: domestic risk vs. foreign risk, Exchange rate (currency) risk, Management of the exchange rate risk, Correlation between international markets, Constraints and costs of international investing

4 READING ΜΑTERIAL Sharpe, W. F, Alexander, G. J & Bailey, J. V: Investments, Prentice-Hall Jones, C. P, Investments, Analysis and Management, Wiley Fabozzi, F. J, Investment Management, Prentice Hall Elton E. J. and Gruber M. J, Modern Portfolio Theory and Investment Analysis, John Wiley & Sons. In addition to the above, it is recommended to read: The finance related journals, such as: Journal of Finance, Review of Financial Studies, Journal of Financial and Quantitative Analysis, Journal of Financial Economics, Financial Analysts Journal, Journal of Applied Corporate Finance, Journal of Portfolio Management, Journal of Investment Management, Financial Management, Journal of Futures Markets, Journal of Derivatives, etc. Financial periodicals/papers, which include: Financial Times, Economist, Wall Street Journal, Ναυτεµπορική, Express, Χρηµατιστήριο, Ηµερησία, Κέρδος, Ισοτιµία (Εβδοµαδιαία), Καθηµερινή, Ένθετο Βήµατος, Οικονοµικός Ταχυδρόµος. Use Databases for data collection, such as: Reuters, Bloomberg, Datastream, Web pages of Companies and Stock Exchanges. Below are some publications in the area which may be referred to during the lectures Kavussanos, M.G., Alexakis, P. and Vasila, A., The road to financial integration in the Eurozone, in Gortsos, C. and G. Provopoulos eds (2004), The new European Financial Environment: Trends and Prospects, Hellenic Bankers Association, p , Sakoulas publications, Athens, with Alexakis, P. and Vasila, A. in Greek. Kavussanos, M.G., A. Juell-Skielse and M. Forrest, International Comparison of Market Risks across Shipping Related Industries, Maritime Policy and Management, Vol. 30, No 2, , Kavussanos, M.G., A. Arkoulis and S. Marcoulis, Macroeconomic factors and international industry returns, Applied Financial Economics, 2002, 12, Kavussanos, M.G. and S. Marcoulis, 'Risk and Return in Transportation and other US and Global Industries', Kluwer Academic Publishers, Kavussanos, M.G. and A. Alizadeh, 'Efficient Pricing of Ships in the Dry Bulk Sector of the Shipping Industry', Maritime Policy and Management, Vol. 29, No 3, , Kavussanos, M.G. and K. Phylaktis, Trading Systems and the relationship between stock returns and trading activity, Greek Economic Review, Vol. 21, No 1, pp , Spring Kavussanos, M.G. and E. Dockery, A Multivariate test for stock market efficiency: The case of ASE, Applied Financial Economics, Vol. 11, No 5, pp , Kavussanos, M.G. and S. Marcoulis, The stock market perception of industry risk and macroeconomic factors: The case of the US water transportation industry versus other transport industries, International Journal of Maritime Economics, Vol. 2, No 3, pp , July-September Kavussanos, M.G. and S. Marcoulis, The stock market perception of industry risk through the use of a multifactor model, International Journal of Transport Economics, Vol. XXVII, No. 1, pp , February Kavussanos, M.G., K. Phylaktis and Manalis, G., Price limits and the stock market volatility in the Athens Stock Exchange, European Financial Management, Vol. 5,1, pp , March 1999.

5 Kavussanos, M.G. and S. Marcoulis, Beta comparisons across industries - A water transportation industry perspective, Maritime Policy and Management, Vol. 25, No 2, pp , Kavussanos, M.G. and S. Marcoulis, The stock market perception of industry risk and microeconomic factors: The case of the US water transportation industry versus other transport industries, Transportation Research, Part E (The Logistics and Transportation Review), Vol. 33, No. 2, pp , July Kavussanos, M.G. and S. Marcoulis, Risk and return of US water transportation stocks over time and over bull and bear market conditions, Maritime Policy and Management, 1997, Vol. 24, No. 2, pp Kavussanos, M.G. K. Phylaktis and G. Manalis, Stock prices and the flow of information in the Athens stock exchange, European Financial Management, 1996, Vol. 2, No 1, pp Kavussanos, M.G. and E. Dockery, Testing the efficient market hypothesis using panel data, with application to the Athens stock exchange, Applied Economic Letters, February 1996, Vol. 3, Issue 2, pp

ANALYSIS AND MANAGEMENT

ANALYSIS AND MANAGEMENT ANALYSIS AND MANAGEMENT T H 1RD CANADIAN EDITION W. SEAN CLEARY Queen's University CHARLES P. JONES North Carolina State University JOHN WILEY & SONS CANADA, LTD. CONTENTS PART ONE Background CHAPTER 1

More information

CFA Examination PORTFOLIO MANAGEMENT Page 1 of 6

CFA Examination PORTFOLIO MANAGEMENT Page 1 of 6 PORTFOLIO MANAGEMENT A. INTRODUCTION RETURN AS A RANDOM VARIABLE E(R) = the return around which the probability distribution is centered: the expected value or mean of the probability distribution of possible

More information

Paper 2. Derivatives Investment Consultant Examination. Thailand Securities Institute November 2014

Paper 2. Derivatives Investment Consultant Examination. Thailand Securities Institute November 2014 Derivatives Investment Consultant Examination Paper 2 Thailand Securities Institute November 2014 Copyright 2014, All right reserve Thailand Securities Institute (TSI) The Stock Exchange of Thailand Page

More information

SAMPLE MID-TERM QUESTIONS

SAMPLE MID-TERM QUESTIONS SAMPLE MID-TERM QUESTIONS William L. Silber HOW TO PREPARE FOR THE MID- TERM: 1. Study in a group 2. Review the concept questions in the Before and After book 3. When you review the questions listed below,

More information

Portfolio Performance Measures

Portfolio Performance Measures Portfolio Performance Measures Objective: Evaluation of active portfolio management. A performance measure is useful, for example, in ranking the performance of mutual funds. Active portfolio managers

More information

CHAPTER 9: THE CAPITAL ASSET PRICING MODEL

CHAPTER 9: THE CAPITAL ASSET PRICING MODEL CHAPTER 9: THE CAPITAL ASSET PRICING MODEL PROBLEM SETS 1. E(r P ) = r f + β P [E(r M ) r f ] 18 = 6 + β P(14 6) β P = 12/8 = 1.5 2. If the security s correlation coefficient with the market portfolio

More information

MODERN PORTFOLIO THEORY AND INVESTMENT ANALYSIS

MODERN PORTFOLIO THEORY AND INVESTMENT ANALYSIS MODERN PORTFOLIO THEORY AND INVESTMENT ANALYSIS EIGHTH EDITION INTERNATIONAL STUDENT VERSION EDWIN J. ELTON Leonard N. Stern School of Business New York University MARTIN J. GRUBER Leonard N. Stern School

More information

Solution: The optimal position for an investor with a coefficient of risk aversion A = 5 in the risky asset is y*:

Solution: The optimal position for an investor with a coefficient of risk aversion A = 5 in the risky asset is y*: Problem 1. Consider a risky asset. Suppose the expected rate of return on the risky asset is 15%, the standard deviation of the asset return is 22%, and the risk-free rate is 6%. What is your optimal position

More information

Review for Exam 2. Instructions: Please read carefully

Review for Exam 2. Instructions: Please read carefully Review for Exam 2 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems You are not responsible for any topics that are not covered in the lecture note

More information

Lecture 1: Asset Allocation

Lecture 1: Asset Allocation Lecture 1: Asset Allocation Investments FIN460-Papanikolaou Asset Allocation I 1/ 62 Overview 1. Introduction 2. Investor s Risk Tolerance 3. Allocating Capital Between a Risky and riskless asset 4. Allocating

More information

15.433 Investments. Assignment 1: Securities, Markets & Capital Market Theory. Each question is worth 0.2 points, the max points is 3 points

15.433 Investments. Assignment 1: Securities, Markets & Capital Market Theory. Each question is worth 0.2 points, the max points is 3 points Assignment 1: Securities, Markets & Capital Market Theory Each question is worth 0.2 points, the max points is 3 points 1. The interest rate charged by banks with excess reserves at a Federal Reserve Bank

More information

Answers to Concepts in Review

Answers to Concepts in Review Answers to Concepts in Review 1. A portfolio is simply a collection of investments assembled to meet a common investment goal. An efficient portfolio is a portfolio offering the highest expected return

More information

AFM 472. Midterm Examination. Monday Oct. 24, 2011. A. Huang

AFM 472. Midterm Examination. Monday Oct. 24, 2011. A. Huang AFM 472 Midterm Examination Monday Oct. 24, 2011 A. Huang Name: Answer Key Student Number: Section (circle one): 10:00am 1:00pm 2:30pm Instructions: 1. Answer all questions in the space provided. If space

More information

The Relationship between systematic risk and stock returns in Tehran Stock Exchange using the capital asset pricing model (CAPM)

The Relationship between systematic risk and stock returns in Tehran Stock Exchange using the capital asset pricing model (CAPM) International Letters of Social and Humanistic Sciences Online: 2014-02-08 ISSN: 2300-2697, Vol. 21, pp 26-35 doi:10.18052/www.scipress.com/ilshs.21.26 2014 SciPress Ltd., Switzerland The Relationship

More information

How Many Days Equal A Year? Non-trivial on the Mean-Variance Model

How Many Days Equal A Year? Non-trivial on the Mean-Variance Model How Many Days Equal A Year? Non-trivial on the Mean-Variance Model George L. Ye, Dr. Sobey School of Business Saint Mary s University Halifax, Nova Scotia, Canada Christine Panasian, Dr. Sobey School of

More information

Capital Allocation Between The Risky And The Risk- Free Asset. Chapter 7

Capital Allocation Between The Risky And The Risk- Free Asset. Chapter 7 Capital Allocation Between The Risky And The Risk- Free Asset Chapter 7 Investment Decisions capital allocation decision = choice of proportion to be invested in risk-free versus risky assets asset allocation

More information

The Capital Asset Pricing Model (CAPM)

The Capital Asset Pricing Model (CAPM) Prof. Alex Shapiro Lecture Notes 9 The Capital Asset Pricing Model (CAPM) I. Readings and Suggested Practice Problems II. III. IV. Introduction: from Assumptions to Implications The Market Portfolio Assumptions

More information

Journal of Exclusive Management Science May 2015 -Vol 4 Issue 5 - ISSN 2277 5684

Journal of Exclusive Management Science May 2015 -Vol 4 Issue 5 - ISSN 2277 5684 Journal of Exclusive Management Science May 2015 Vol 4 Issue 5 ISSN 2277 5684 A Study on the Emprical Testing Of Capital Asset Pricing Model on Selected Energy Sector Companies Listed In NSE Abstract *S.A.

More information

FIN 432 Investment Analysis and Management Review Notes for Midterm Exam

FIN 432 Investment Analysis and Management Review Notes for Midterm Exam FIN 432 Investment Analysis and Management Review Notes for Midterm Exam Chapter 1 1. Investment vs. investments 2. Real assets vs. financial assets 3. Investment process Investment policy, asset allocation,

More information

CHAPTER 11: ARBITRAGE PRICING THEORY

CHAPTER 11: ARBITRAGE PRICING THEORY CHAPTER 11: ARBITRAGE PRICING THEORY 1. The revised estimate of the expected rate of return on the stock would be the old estimate plus the sum of the products of the unexpected change in each factor times

More information

CHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM)

CHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) CHAPTER 10 RISK AND RETURN: THE CAPITAL ASSET PRICING MODEL (CAPM) Answers to Concepts Review and Critical Thinking Questions 1. Some of the risk in holding any asset is unique to the asset in question.

More information

QUANTITATIVE FINANCIAL ECONOMICS

QUANTITATIVE FINANCIAL ECONOMICS Ill. i,t.,. QUANTITATIVE FINANCIAL ECONOMICS STOCKS, BONDS AND FOREIGN EXCHANGE Second Edition KEITH CUTHBERTSON AND DIRK NITZSCHE HOCHSCHULE John Wiley 8k Sons, Ltd CONTENTS Preface Acknowledgements 2.1

More information

Mid-Term Spring 2003

Mid-Term Spring 2003 Mid-Term Spring 2003 1. (1 point) You want to purchase XYZ stock at $60 from your broker using as little of your own money as possible. If initial margin is 50% and you have $3000 to invest, how many shares

More information

Models of Risk and Return

Models of Risk and Return Models of Risk and Return Aswath Damodaran Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for

More information

CHAPTER 7: OPTIMAL RISKY PORTFOLIOS

CHAPTER 7: OPTIMAL RISKY PORTFOLIOS CHAPTER 7: OPTIMAL RIKY PORTFOLIO PROLEM ET 1. (a) and (e).. (a) and (c). After real estate is added to the portfolio, there are four asset classes in the portfolio: stocks, bonds, cash and real estate.

More information

Chapter 7 Risk and Return: Portfolio Theory and Asset Pricing Models ANSWERS TO END-OF-CHAPTER QUESTIONS

Chapter 7 Risk and Return: Portfolio Theory and Asset Pricing Models ANSWERS TO END-OF-CHAPTER QUESTIONS Chapter 7 Risk and Return: Portfolio Theory and Asset Pricing odels ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 a. A portfolio is made up of a group of individual assets held in combination. An asset that

More information

CAPM, Arbitrage, and Linear Factor Models

CAPM, Arbitrage, and Linear Factor Models CAPM, Arbitrage, and Linear Factor Models CAPM, Arbitrage, Linear Factor Models 1/ 41 Introduction We now assume all investors actually choose mean-variance e cient portfolios. By equating these investors

More information

TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II + III

TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II + III TPPE17 Corporate Finance 1(5) SOLUTIONS RE-EXAMS 2014 II III Instructions 1. Only one problem should be treated on each sheet of paper and only one side of the sheet should be used. 2. The solutions folder

More information

Investment Portfolio Management and Effective Asset Allocation for Institutional and Private Banking Clients

Investment Portfolio Management and Effective Asset Allocation for Institutional and Private Banking Clients Investment Portfolio Management and Effective Asset Allocation for Institutional and Private Banking Clients www.mce-ama.com/2396 Senior Managers Days 4 www.mce-ama.com 1 WHY attend this programme? This

More information

The Tangent or Efficient Portfolio

The Tangent or Efficient Portfolio The Tangent or Efficient Portfolio 1 2 Identifying the Tangent Portfolio Sharpe Ratio: Measures the ratio of reward-to-volatility provided by a portfolio Sharpe Ratio Portfolio Excess Return E[ RP ] r

More information

Wel Dlp Portfolio And Risk Management

Wel Dlp Portfolio And Risk Management 1. In case of perfect diversification, the systematic risk is nil. Wel Dlp Portfolio And Risk Management 2. The objectives of investors while putting money in various avenues are:- (a) Safety (b) Capital

More information

1 Capital Asset Pricing Model (CAPM)

1 Capital Asset Pricing Model (CAPM) Copyright c 2005 by Karl Sigman 1 Capital Asset Pricing Model (CAPM) We now assume an idealized framework for an open market place, where all the risky assets refer to (say) all the tradeable stocks available

More information

FINANCIAL PLANNING ASSOCIATION OF MALAYSIA

FINANCIAL PLANNING ASSOCIATION OF MALAYSIA FINANCIAL PLANNING ASSOCIATION OF MALAYSIA MODULE 4 INVESTMENT PLANNING Course Objectives To understand the concepts of risk and return, the financial markets and the various financial instruments available,

More information

M.I.T. Spring 1999 Sloan School of Management 15.415. First Half Summary

M.I.T. Spring 1999 Sloan School of Management 15.415. First Half Summary M.I.T. Spring 1999 Sloan School of Management 15.415 First Half Summary Present Values Basic Idea: We should discount future cash flows. The appropriate discount rate is the opportunity cost of capital.

More information

Black-Litterman Return Forecasts in. Tom Idzorek and Jill Adrogue Zephyr Associates, Inc. September 9, 2003

Black-Litterman Return Forecasts in. Tom Idzorek and Jill Adrogue Zephyr Associates, Inc. September 9, 2003 Black-Litterman Return Forecasts in Tom Idzorek and Jill Adrogue Zephyr Associates, Inc. September 9, 2003 Using Black-Litterman Return Forecasts for Asset Allocation Results in Diversified Portfolios

More information

Computer Handholders Investment Software Research Paper Series TAILORING ASSET ALLOCATION TO THE INDIVIDUAL INVESTOR

Computer Handholders Investment Software Research Paper Series TAILORING ASSET ALLOCATION TO THE INDIVIDUAL INVESTOR Computer Handholders Investment Software Research Paper Series TAILORING ASSET ALLOCATION TO THE INDIVIDUAL INVESTOR David N. Nawrocki -- Villanova University ABSTRACT Asset allocation has typically used

More information

Enhancing the Teaching of Statistics: Portfolio Theory, an Application of Statistics in Finance

Enhancing the Teaching of Statistics: Portfolio Theory, an Application of Statistics in Finance Page 1 of 11 Enhancing the Teaching of Statistics: Portfolio Theory, an Application of Statistics in Finance Nicolas Christou University of California, Los Angeles Journal of Statistics Education Volume

More information

Review for Exam 2. Instructions: Please read carefully

Review for Exam 2. Instructions: Please read carefully Review for Exam Instructions: Please read carefully The exam will have 1 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation questions.

More information

Practice Set #4 and Solutions.

Practice Set #4 and Solutions. FIN-469 Investments Analysis Professor Michel A. Robe Practice Set #4 and Solutions. What to do with this practice set? To help students prepare for the assignment and the exams, practice sets with solutions

More information

Monika Goel Online Classes FINANCIAL, TREASURY AND FOREX MANAGEMENT Module II (C.S Professional Course)

Monika Goel Online Classes FINANCIAL, TREASURY AND FOREX MANAGEMENT Module II (C.S Professional Course) Monika Goel Online Classes FINANCIAL, TREASURY AND FOREX MANAGEMENT Module II (C.S Professional Course) Session Plan Day Date Time Topics- to be covered 14 h July, Nature and Scope of Financial Management

More information

Midterm Exam:Answer Sheet

Midterm Exam:Answer Sheet Econ 497 Barry W. Ickes Spring 2007 Midterm Exam:Answer Sheet 1. (25%) Consider a portfolio, c, comprised of a risk-free and risky asset, with returns given by r f and E(r p ), respectively. Let y be the

More information

11. OVERVIEW OF THE INVESTMENT PORTFOLIO SOFTWARE

11. OVERVIEW OF THE INVESTMENT PORTFOLIO SOFTWARE 11. OVERVIEW OF THE INVESTMENT PORTFOLIO SOFTWARE The Investment Portfolio software was developed by Edwin J. Elton, Martin J. Gruber and Christopher R. Blake, in conjunction with IntelliPro, Inc., to

More information

EQUITY OPTIMIZATION ISSUES IV: THE FUNDAMENTAL LAW OF MISMANAGEMENT* By Richard Michaud and Robert Michaud New Frontier Advisors, LLC July 2005

EQUITY OPTIMIZATION ISSUES IV: THE FUNDAMENTAL LAW OF MISMANAGEMENT* By Richard Michaud and Robert Michaud New Frontier Advisors, LLC July 2005 EQUITY OPTIMIZATION ISSUES IV: THE FUNDAMENTAL LAW OF MISMANAGEMENT* By Richard Michaud and Robert Michaud New Frontier Advisors, LLC July 2005 The Grinold Law of Active Management is one of the most widely

More information

This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls ~~FN3023 ZA d0 This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON FN3023 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences,

More information

CHAPTER 6. Topics in Chapter. What are investment returns? Risk, Return, and the Capital Asset Pricing Model

CHAPTER 6. Topics in Chapter. What are investment returns? Risk, Return, and the Capital Asset Pricing Model CHAPTER 6 Risk, Return, and the Capital Asset Pricing Model 1 Topics in Chapter Basic return concepts Basic risk concepts Stand-alone risk Portfolio (market) risk Risk and return: CAPM/SML 2 What are investment

More information

Class Meets: Monday 6:00-9:00 p.m. Office Hours: Monday 1:00-5:00 p.m. and at other times by appointment

Class Meets: Monday 6:00-9:00 p.m. Office Hours: Monday 1:00-5:00 p.m. and at other times by appointment Advanced Portfolio Analysis Professor Martin J. Gruber B40.3332 Office: KMC 9-88 Fall 2004 Phone: 998-0333 Class Meets: Monday 6:00-9:00 p.m. Office Hours: Monday 1:00-5:00 p.m. and at other times by appointment

More information

15.433 INVESTMENTS Class 20: Active Portfolio Management. Spring 2003

15.433 INVESTMENTS Class 20: Active Portfolio Management. Spring 2003 15.433 INVESTMENTS Class 20: Active Portfolio Management Spring 2003 Financial instruments are increasing in number and complexity Currency- options Currencyforwards Government Semigovernments Agencies

More information

Chap 3 CAPM, Arbitrage, and Linear Factor Models

Chap 3 CAPM, Arbitrage, and Linear Factor Models Chap 3 CAPM, Arbitrage, and Linear Factor Models 1 Asset Pricing Model a logical extension of portfolio selection theory is to consider the equilibrium asset pricing consequences of investors individually

More information

Practical Portfolio Performance. Measurement and Attribution.

Practical Portfolio Performance. Measurement and Attribution. Practical Portfolio Performance. Measurement and Attribution. Second Edition Carl R. Bacon John Wiley & Sons, Ltd Acknowledgements 'xv 1 Introduction 1 Why measure portfolio performance? ' 1 The performance

More information

London School of Economics FM423 - FT - 2008-9. Course Syllabus

London School of Economics FM423 - FT - 2008-9. Course Syllabus London School of Economics FM423 - FT - 2008-9 Department of Finance Vayanos - Yuan - Zachariadis Course Syllabus Course Description This is the core investments course in the MSc Finance Full-Time Programme.

More information

Futures Price d,f $ 0.65 = (1.05) (1.04)

Futures Price d,f $ 0.65 = (1.05) (1.04) 24 e. Currency Futures In a currency futures contract, you enter into a contract to buy a foreign currency at a price fixed today. To see how spot and futures currency prices are related, note that holding

More information

ADVANTAGES OF INTERNATIONAL PORTFOLIO DIVERSIFICATION

ADVANTAGES OF INTERNATIONAL PORTFOLIO DIVERSIFICATION ADVANTAGES OF INTERNATIONAL PORTFOLIO DIVERSIFICATION MISS DEEPIKA GOEL*;MISS MONIKA SINGH CHAUDHARY** *ASSISTANT PROFESSOR, DEPARTMENT OF BUSINESS MANAGEMENT, SHRI RAM COLLEGE OF ENGINEERING & MANAGEMENT,

More information

EC247 FINANCIAL INSTRUMENTS AND CAPITAL MARKETS TERM PAPER

EC247 FINANCIAL INSTRUMENTS AND CAPITAL MARKETS TERM PAPER EC247 FINANCIAL INSTRUMENTS AND CAPITAL MARKETS TERM PAPER NAME: IOANNA KOULLOUROU REG. NUMBER: 1004216 1 Term Paper Title: Explain what is meant by the term structure of interest rates. Critically evaluate

More information

REAL ESTATE PORTFOLIO MANAGEMENT & ASSET ALLOCATION

REAL ESTATE PORTFOLIO MANAGEMENT & ASSET ALLOCATION REAL ESTATE PORTFOLIO MANAGEMENT & ASSET ALLOCATION BIBF plays a vital role in the training and development of human capital in the Middle East and North Africa. Our commitment to excellence has strengthened

More information

Chapter 5. Risk and Return. Copyright 2009 Pearson Prentice Hall. All rights reserved.

Chapter 5. Risk and Return. Copyright 2009 Pearson Prentice Hall. All rights reserved. Chapter 5 Risk and Return Learning Goals 1. Understand the meaning and fundamentals of risk, return, and risk aversion. 2. Describe procedures for assessing and measuring the risk of a single asset. 3.

More information

Lecture 6: Arbitrage Pricing Theory

Lecture 6: Arbitrage Pricing Theory Lecture 6: Arbitrage Pricing Theory Investments FIN460-Papanikolaou APT 1/ 48 Overview 1. Introduction 2. Multi-Factor Models 3. The Arbitrage Pricing Theory FIN460-Papanikolaou APT 2/ 48 Introduction

More information

Rethinking Fixed Income

Rethinking Fixed Income Rethinking Fixed Income Challenging Conventional Wisdom May 2013 Risk. Reinsurance. Human Resources. Rethinking Fixed Income: Challenging Conventional Wisdom With US Treasury interest rates at, or near,

More information

Benchmarking Low-Volatility Strategies

Benchmarking Low-Volatility Strategies Benchmarking Low-Volatility Strategies David Blitz* Head Quantitative Equity Research Robeco Asset Management Pim van Vliet, PhD** Portfolio Manager Quantitative Equity Robeco Asset Management forthcoming

More information

1. CFI Holdings is a conglomerate listed on the Zimbabwe Stock Exchange (ZSE) and has three operating divisions as follows:

1. CFI Holdings is a conglomerate listed on the Zimbabwe Stock Exchange (ZSE) and has three operating divisions as follows: NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE DEPARTMENT OF FINANCE BACHELOR OF COMMERCE HONOURS DEGREE IN FINANCE PART II 2 ND SEMESTER FINAL EXAMINATION MAY 2005 CORPORATE FINANCE

More information

LECTURE 17: RISK AND DIVERSIFICATION

LECTURE 17: RISK AND DIVERSIFICATION LECTURE 17: RISK AND DIVERSIFICATION I. STUDENT LEARNING OBJECTIVES A. Risk aversion B. Investment implications of risk aversion C. Standard deviation as a measure of risk for individual securities and

More information

Executive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011

Executive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011 Executive Summary of Finance 430 Professor Vissing-Jørgensen Finance 430-62/63/64, Winter 2011 Weekly Topics: 1. Present and Future Values, Annuities and Perpetuities 2. More on NPV 3. Capital Budgeting

More information

NPTEL http://nptel.iitm.ac.in

NPTEL http://nptel.iitm.ac.in NPTEL Syllabus Security and - Video course COURSE OUTLINE This course provides a broad overview of investment management, focusing on the application of finance theory to the issue faced by portfolio managers

More information

CHAPTER 15 INTERNATIONAL PORTFOLIO INVESTMENT SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS

CHAPTER 15 INTERNATIONAL PORTFOLIO INVESTMENT SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS CHAPTER 15 INTERNATIONAL PORTFOLIO INVESTMENT SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. What factors are responsible for the recent surge in international portfolio

More information

The CAPM (Capital Asset Pricing Model) NPV Dependent on Discount Rate Schedule

The CAPM (Capital Asset Pricing Model) NPV Dependent on Discount Rate Schedule The CAPM (Capital Asset Pricing Model) Massachusetts Institute of Technology CAPM Slide 1 of NPV Dependent on Discount Rate Schedule Discussed NPV and time value of money Choice of discount rate influences

More information

Lesson 5. Risky assets

Lesson 5. Risky assets Lesson 5. Risky assets Prof. Beatriz de Blas May 2006 5. Risky assets 2 Introduction How stock markets serve to allocate risk. Plan of the lesson: 8 >< >: 1. Risk and risk aversion 2. Portfolio risk 3.

More information

Chapter 5. Risk and Return. Learning Goals. Learning Goals (cont.)

Chapter 5. Risk and Return. Learning Goals. Learning Goals (cont.) Chapter 5 Risk and Return Learning Goals 1. Understand the meaning and fundamentals of risk, return, and risk aversion. 2. Describe procedures for assessing and measuring the risk of a single asset. 3.

More information

fi360 Asset Allocation Optimizer: Risk-Return Estimates*

fi360 Asset Allocation Optimizer: Risk-Return Estimates* fi360 Asset Allocation Optimizer: Risk-Return Estimates* Prepared for fi360 by: Richard Michaud, Robert Michaud, Daniel Balter New Frontier Advisors LLC Boston, MA 02110 February 2015 * 2015 New Frontier

More information

CHAPTER 6: RISK AVERSION AND CAPITAL ALLOCATION TO RISKY ASSETS

CHAPTER 6: RISK AVERSION AND CAPITAL ALLOCATION TO RISKY ASSETS CHAPTER 6: RISK AVERSION AND CAPITAL ALLOCATION TO RISKY ASSETS PROBLEM SETS 1. (e). (b) A higher borrowing is a consequence of the risk of the borrowers default. In perfect markets with no additional

More information

FORECASTING THROUGH SINGLE INDEX MODEL: A STUDY ON SELECTED INDIAN BANKS

FORECASTING THROUGH SINGLE INDEX MODEL: A STUDY ON SELECTED INDIAN BANKS FORECASTING THROUGH SINGLE INDEX MODEL: A STUDY ON SELECTED INDIAN BANKS ABSTRACT A model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on the

More information

FE670 Algorithmic Trading Strategies. Stevens Institute of Technology

FE670 Algorithmic Trading Strategies. Stevens Institute of Technology FE670 Algorithmic Trading Strategies Lecture 6. Portfolio Optimization: Basic Theory and Practice Steve Yang Stevens Institute of Technology 10/03/2013 Outline 1 Mean-Variance Analysis: Overview 2 Classical

More information

Last update: December 19, 2013. Global Master of Finance Dual Degree Course Descriptions. Foundation Courses. FIN B62 510. Introduction to Finance

Last update: December 19, 2013. Global Master of Finance Dual Degree Course Descriptions. Foundation Courses. FIN B62 510. Introduction to Finance Last update: December 19, 2013 Global Master of Finance Dual Degree Course Descriptions Foundation Courses FIN B62 510. Introduction to Finance The main topics to be covered in this course are (1) principles

More information

The number of mutual funds has grown dramatically in recent

The number of mutual funds has grown dramatically in recent Risk-Adjusted Performance of Mutual Funds Katerina Simons Economist, Federal Reserve Bank of Boston. The author is grateful to Richard Kopcke and Peter Fortune for helpful comments and to Jay Seideman

More information

Auke Plantinga and Sebastiaan de Groot 1. November 2001. SOM-theme E: Financial markets and institutions

Auke Plantinga and Sebastiaan de Groot 1. November 2001. SOM-theme E: Financial markets and institutions 5,6.$'-867('3(5)250$1&(0($685(6 $1',03/,('5,6.$77,78'(6 Auke Plantinga and Sebastiaan de Groot 1 November 2001 SOM-theme E: Financial markets and institutions $EVWUDFW In this article we study the relation

More information

School of Property, Construction and Project Management. Pacific Rim Real Estate Society Conference Paper

School of Property, Construction and Project Management. Pacific Rim Real Estate Society Conference Paper School of Property, Construction and Project Management Pacific Rim Real Estate Society Conference Paper Australian Securitised Property Funds: Tracking Error Analysis and Investment Styles January 2009

More information

OPTIMAL PORTFOLIO SELECTION: An empirical study of SIC Insurance Company s Investments. By: Wilhelmina Aryeetey (B.Sc Mathematics)

OPTIMAL PORTFOLIO SELECTION: An empirical study of SIC Insurance Company s Investments. By: Wilhelmina Aryeetey (B.Sc Mathematics) OPTIMAL PORTFOLIO SELECTION: An empirical study of SIC Insurance Company s Investments By: Wilhelmina Aryeetey (B.Sc Mathematics) A thesis submitted to the Institute of Distance Learning (IDL), Kwame Nkrumah

More information

Risk and Return Models: Equity and Debt. Aswath Damodaran 1

Risk and Return Models: Equity and Debt. Aswath Damodaran 1 Risk and Return Models: Equity and Debt Aswath Damodaran 1 First Principles Invest in projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for

More information

15.401 Finance Theory

15.401 Finance Theory Finance Theory MIT Sloan MBA Program Andrew W. Lo Harris & Harris Group Professor, MIT Sloan School Lecture 13 14 14: : Risk Analytics and Critical Concepts Motivation Measuring Risk and Reward Mean-Variance

More information

Certified Personal Financial Advisor (CPFA) for Examination

Certified Personal Financial Advisor (CPFA) for Examination NATIONAL INSTITUTE OF SECURITIES MARKETS Certified Personal Financial Advisor (CPFA) for Examination Test Objectives 1. Concept of Financial Planning 1.1 Understand what financial planning constitutes

More information

A Jigsaw Puzzle of Basic Risk-adjusted Performance Measures

A Jigsaw Puzzle of Basic Risk-adjusted Performance Measures A Jigsaw Puzzle of Basic Risk-adjusted Performance Measures In 1997, Modigliani and Modigliani developed the risk-adjusted performance measure (often called M- squared), which is now widely accepted in

More information

Makeup Exam MØA 155 Financial Economics February 2010 Permitted Material: Calculator, Norwegian/English Dictionary

Makeup Exam MØA 155 Financial Economics February 2010 Permitted Material: Calculator, Norwegian/English Dictionary University of Stavanger (UiS) Stavanger Masters Program Makeup Exam MØA 155 Financial Economics February 2010 Permitted Material: Calculator, Norwegian/English Dictionary The number in brackets is the

More information

Securities Analysis & Portfolio Management. Presented By Md. Ashraful Islam Director, SEC

Securities Analysis & Portfolio Management. Presented By Md. Ashraful Islam Director, SEC Securities Analysis & Portfolio Management Presented By Md. Ashraful Islam Director, SEC Contents Part-A: Investment fundamentals Understanding investment Some definitions Sources and types of risk Risk-return

More information

CONTENTS MODULE 1: INDUSTRY OVERVIEW 4 MODULE 2: ETHICS AND REGULATION 6 MODULE 3: INPUTS AND TOOLS 8 MODULE 4: INVESTMENT INSTRUMENTS 12

CONTENTS MODULE 1: INDUSTRY OVERVIEW 4 MODULE 2: ETHICS AND REGULATION 6 MODULE 3: INPUTS AND TOOLS 8 MODULE 4: INVESTMENT INSTRUMENTS 12 SYLLABUS OVERVIEW 1 CONTENTS MODULE 1: INDUSTRY OVERVIEW 4 CHAPTER 1 The Investment Industry: A Top-Down View MODULE 2: ETHICS AND REGULATION 6 CHAPTER 2 CHAPTER 3 Ethics and Investment Professionalism

More information

Diversification in the Chinese Stock Market

Diversification in the Chinese Stock Market Diversification in the Chinese Stock Market Yexiao Xu School of Management The University of Texas at Dallas and Shanghai Stock Exchange This version: September 2003 Abstract Modern finance theory suggests

More information

Chapter 7 Risk, Return, and the Capital Asset Pricing Model

Chapter 7 Risk, Return, and the Capital Asset Pricing Model Chapter 7 Risk, Return, and the Capital Asset Pricing Model MULTIPLE CHOICE 1. Suppose Sarah can borrow and lend at the risk free-rate of 3%. Which of the following four risky portfolios should she hold

More information

A Simple Utility Approach to Private Equity Sales

A Simple Utility Approach to Private Equity Sales The Journal of Entrepreneurial Finance Volume 8 Issue 1 Spring 2003 Article 7 12-2003 A Simple Utility Approach to Private Equity Sales Robert Dubil San Jose State University Follow this and additional

More information

The Capital Asset Pricing Model

The Capital Asset Pricing Model Journal of Economic Perspectives Volume 18, Number 3 Summer 2004 Pages 3 24 The Capital Asset Pricing Model André F. Perold A fundamental question in finance is how the risk of an investment should affect

More information

Combining decision analysis and portfolio management to improve project selection in the exploration and production firm

Combining decision analysis and portfolio management to improve project selection in the exploration and production firm Journal of Petroleum Science and Engineering 44 (2004) 55 65 www.elsevier.com/locate/petrol Combining decision analysis and portfolio management to improve project selection in the exploration and production

More information

Black Scholes Merton Approach To Modelling Financial Derivatives Prices Tomas Sinkariovas 0802869. Words: 3441

Black Scholes Merton Approach To Modelling Financial Derivatives Prices Tomas Sinkariovas 0802869. Words: 3441 Black Scholes Merton Approach To Modelling Financial Derivatives Prices Tomas Sinkariovas 0802869 Words: 3441 1 1. Introduction In this paper I present Black, Scholes (1973) and Merton (1973) (BSM) general

More information

PHD PROGRAM IN FINANCE COURSE PROGRAMME AND COURSE CONTENTS

PHD PROGRAM IN FINANCE COURSE PROGRAMME AND COURSE CONTENTS PHD PROGRAM IN FINANCE COURSE PROGRAMME AND COURSE CONTENTS I. Semester II. Semester FINC 601 Corporate Finance 8 FINC 602 Asset Pricing 8 FINC 603 Quantitative Methods in Finance 8 FINC 670 Seminar 4

More information

t = 1 2 3 1. Calculate the implied interest rates and graph the term structure of interest rates. t = 1 2 3 X t = 100 100 100 t = 1 2 3

t = 1 2 3 1. Calculate the implied interest rates and graph the term structure of interest rates. t = 1 2 3 X t = 100 100 100 t = 1 2 3 MØA 155 PROBLEM SET: Summarizing Exercise 1. Present Value [3] You are given the following prices P t today for receiving risk free payments t periods from now. t = 1 2 3 P t = 0.95 0.9 0.85 1. Calculate

More information

Global Master of Finance Dual Degree Master in Finance and Banking UPF Course Descriptions

Global Master of Finance Dual Degree Master in Finance and Banking UPF Course Descriptions Global Master of Finance Dual Degree Master in Finance and Banking UPF Course Descriptions Olin Foundation Courses FIN B62 510. Introduction to Finance The main topics to be covered in this course are

More information

A Review of Cross Sectional Regression for Financial Data You should already know this material from previous study

A Review of Cross Sectional Regression for Financial Data You should already know this material from previous study A Review of Cross Sectional Regression for Financial Data You should already know this material from previous study But I will offer a review, with a focus on issues which arise in finance 1 TYPES OF FINANCIAL

More information

CHAPTER XVII ASSET ALLOCATION AND PORTFOLIO MANAGEMENT

CHAPTER XVII ASSET ALLOCATION AND PORTFOLIO MANAGEMENT CHAPTER XVII ASSET ALLOCATION AND PORTFOLIO MANAGEMENT The Review Chapter points out the benefits of diversification. As noted in Chapter IX, in international markets, those benefits are substantial. Given

More information

Chapter 1. Introduction to Portfolio Theory. 1.1 Portfolios of Two Risky Assets

Chapter 1. Introduction to Portfolio Theory. 1.1 Portfolios of Two Risky Assets Chapter 1 Introduction to Portfolio Theory Updated: August 9, 2013. This chapter introduces modern portfolio theory in a simplified setting where there are only two risky assets and a single risk-free

More information

Understanding the Impact of Weights Constraints in Portfolio Theory

Understanding the Impact of Weights Constraints in Portfolio Theory Understanding the Impact of Weights Constraints in Portfolio Theory Thierry Roncalli Research & Development Lyxor Asset Management, Paris thierry.roncalli@lyxor.com January 2010 Abstract In this article,

More information

The Binomial Option Pricing Model André Farber

The Binomial Option Pricing Model André Farber 1 Solvay Business School Université Libre de Bruxelles The Binomial Option Pricing Model André Farber January 2002 Consider a non-dividend paying stock whose price is initially S 0. Divide time into small

More information

Calculating the weighted average cost of capital for the telephone industry in Russia

Calculating the weighted average cost of capital for the telephone industry in Russia Calculating the weighted average cost of capital for the telephone industry in Russia Abstract: John Gardner University of New Orleans Carl McGowan, Jr. Norfolk State University Susan Moeller Eastern Michigan

More information

LESSON 28: CAPITAL ASSET PRICING MODEL (CAPM)

LESSON 28: CAPITAL ASSET PRICING MODEL (CAPM) LESSON 28: CAPITAL ASSET PRICING MODEL (CAPM) The CAPM was developed to explain how risky securities are priced in market and this was attributed to experts like Sharpe and Lintner. Markowitz theory being

More information

MSc Finance and Economics detailed module information

MSc Finance and Economics detailed module information MSc Finance and Economics detailed module information Example timetable Please note that information regarding modules is subject to change. TERM 1 TERM 2 TERM 3 INDUCTION WEEK EXAM PERIOD Week 1 EXAM

More information

CML is the tangent line drawn from the risk free point to the feasible region for risky assets. This line shows the relation between r P and

CML is the tangent line drawn from the risk free point to the feasible region for risky assets. This line shows the relation between r P and 5. Capital Asset Pricing Model and Factor Models Capital market line (CML) CML is the tangent line drawn from the risk free point to the feasible region for risky assets. This line shows the relation between

More information