Investment Analysis and Portfolio Management (FB5153)

Year 2015-16 Winter (Intensive Mode) by Dr. Xueping Wu

(For MBA Students)

Class Time: Wednesday (7:00pm – 9:20pm) and Saturday (2:00pm – 5:50pm)

Class Venue: (AC3) 14-222

Office: (AC3) 10-236; Tel: 3442-7577; email: efxpwu@cityu.edu.hk

Homepage: http://personal.cityu.edu.hk/~efxpwu/
Office hours: by appointment

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Aims and Objectives: This course is aimed to cover portfolio investment theories and applications. After the course is completed, students are expected to apply fundamental investment principles in capital markets. Most important, students will be able to think and act professionally regarding the risk-return tradeoff involved in investment strategies and portfolio management.

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Course materials: Class handouts and the textbook: Bodie, Kane, Marcus and Jain: Investments, Asia Global Edition, 2014 or higher edition, McGraw-Hill;
Online Learning Center: http://highered.mcgraw-hill.com/sites/0071262288/information_center_view0/

Grade weights: Coursework 50%; exam 50%;

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Course Outline

Topic 1: Risk and Return in A Historical Perspective (Ch. 5)--Home Reading

• Interest rates, EARs and APRs
• Risk and risk premiums
• Bills, bonds, and stocks
• HPR and Return distributions

Topic 2: Risk, Risk Aversion, Capital Allocation (Ch. 6)

• Risk, risk aversion, and utility values
• Utility functions and indifference curves
• Portfolio formation between risk-free asset and risky assets
• Risk tolerance and asset allocation
• Passive strategies: Capital Allocation Line (CAL)

Topic 3: Optimal Risky Portfolios (Ch.7)

• Diversification and portfolio risk
• Portfolio of two risky assets
• Minimum-variance frontier and Efficient frontier
• Portfolio selection and risk aversion

Topic 4: The Capital Asset Pricing Model--CAPM (Ch.9)

• Diversification and beta risk
• Systematic and unsystematic risk
• Return and beta risk relationship: CAPM
• Market portfolio and Security market line
• Liquidity and the CAPM

Topic 5: Index Models (Ch.8 and also part of Ch.10)

• Decomposition of a realized return: shocks and sensitivity
• Estimating the index model: regression
• R-square and market risk
• The CAPM and the single index model
• Alfa and beta
• Multifactor Model and the Fama-French Three Factor Model

Topic 6: Equity Valuation Models (Ch. 18)

• Fundamental analysis
• Dividend discount model
• Growth models and growth opportunities
• Growth and P/E

Topic 7: The Efficient Market Hypothesis--EMH (Ch. 11)

• Random walk and the EMH
• Weak-from, semi-strong-form, and strong-from tests
• Event studies
• Anomalies

Topic 8: Behavioral Finance (Ch.12)

• Information Processing Errors, Overconfidence
• Behavioral Biases, Framing, Mental Accounting, Prospect Theory
• Limits to Arbitrage and the Law of One Price
• Bubbles and Behavioral Economics

Topic 9: Bond Prices and Yields (Ch. 14)

• Bond characteristics
• Bond pricing and bond yields
• Default risk and bond rating

Topic 10: Term Structure of Interest Rates (Ch. 15)

• Interest rate uncertainty
• Spot and forward rates
• Yield curve
• Forward rates as forward contracts

Topic 11: Managing Bond Portfolios (Ch.16)

• A Review of Basic Concepts
• Interest Rate Sensitivity and Duration
• Convexity
• Bond Immunization and Swapping Strategies
• Mortgage-backed Security (MBS)

Topic 12: Portfolio Performance Evaluation (Ch. 24)

• Dollar- and time-weighted returns
• Conventional Theory of Performance Evaluation
• Performance Measurement for Hedge Funds
• Market timing, security selection, and style analysis
• Portfolio attribution

Practitioners' Readings:

        (1) Rethinking Stock Returns
        (2) Capital Market Theory: Is It Relevant to Practitioners?

        (3) Ten Lessons for the Twenty-first Century Investor

        (4) The Ultimate Value Investors

        (5) A Retrospective on the Stock Market in 2000
        (6) Searching the Value of the U.S. Stock Market
        (7) How Corrupt Is Wall Street?
        (8) Analyzing Analyst Recommendations
        (9) An Investor's Guide to Bond Basics
        (10) The Living Yield Curve

        (11) Rising Junk Bond Yields: Liquidity or Credit Concerns?

        (12) Bond Index Funds--a Synopsis

        (13) An Investor's Guide to Bond Swapping

End