Course Description

In recent years the study of Investments has shifted dramatically from institutional description to analytical explanation. Everyday, the financial markets price trillions of dollars in such risky securities as stocks, bonds, options, futures and derivatives. The systematic determination of their values-Asset Pricing-has developed dramatically in the last few years due to advances in financial theory and econometrics. The analytical framework of this course provides an understanding of financial asset evaluation and price determination that allows the student to explain security prices and to relate the specific money and capital market factors as well as corporate events to security price movements. Also many of the quantitative techniques that have found applications in security analysis and portfolio management are explained. Lectures and readings will provide the student a broad understanding of institutional structure of capital markets, principles and practices in securities transactions, the portfolio theory and its application, the performance measurements associated with investments and other related issues. We will cover a wide range of topics, such as, distribution of stock returns; capital allocation and optimal portfolio selection; diversification, risk, and various cross-sectional asset pricing models linking risks with returns, such as, the CAPM, the Fama-French 3-factor model (value and size investing); risk-adjusted returns, measures of fund performance, and active investment strategies to beat benchmarks; market efficiency (including empirical anomalies and behavioral finance); bond valuation and the term structure of interest rates; We will also glance at a few advanced topics, such as, momentum investing (Jegadeesh-Titman winner-loser portfolio and Carhart 4-factor model), return predictability and market timing, various trading strategies used by hedge funds, adjustments for management and performance fees, impact of borrowing constraint and transaction costs and illiquidity, and risk management issues, such as, portfolio insurance, value-at-risk (VaR), etc. as time permits. What We Don't Cover: We do not discuss the fine art of stock picking, or provide you with foolproof ways to make money in the financial markets. The detailed analysis of individual companies and their balance sheets lies outside the scope of this course. Even though I have attempted to fit as much material as possible in this course, a number of important topics, such as, various institutional details of the markets, financial statement analysis, the impact of taxes on investments, and the issues related to various capital markets regulations will remain beyond the scope of this course. Access to computer with full installation of Excel software Required. [Make sure to install the Solver Add-in and the Analysis ToolPak Add-in.] Some cases in Investments present investment situations that allow the students to relate theories and concepts to "real world" situations. Cases may some times be used to increase the student's interest, to enhance knowledge and to illustrate specific points throughout the course. Cutting edge integration of relevant internet addresses throughout the semester leads students to real-world, real-time applications. Wall Street Journal articles are used to illustrate the relationship between concepts or principles discussed in class and their effect on real world events. Wall Street Journal coverage also serves as a powerful reinforecement for students, helping to underscore the value of their class room experience. WSJ coverage gives students a sense of the power of ideas they are learning. The key words I equate with FNAN505 course-quantitative methods and skills, integration of disciplines, problem-solving, team-building, technology, innovation, entrepreneurship-are on display each and every day in the WSJ. There is a solid link between academic goals and the Journal's ability to influence students' understanding of core business issues.