FINC 432 Portfolio Management Course Guide

Course Description

Advanced study in the area of global investment management with the emphasis on analysis of modern portfolio theories and advanced investment strategies. This seminar also expands students' understanding of derivative-related financial instruments (forwards, futures and options) and their use in portfolio management. For instance, the course focuses on the usage of these instruments for hedging, speculation and tactical asset allocation strategies. The course takes a quantitative approach in the decision-making process and requires an oral and written presentation of computer-based research projects. Prerequisite: FINC 315


Specific, Assessable, Learning Objectives

  1. Define and apply the concept of portfolio policy.
  2. Identify, distinguish, relate and interpret the various forms of investments in terms of risk, return, skewness, kurtosis, and correlation.
  3. Analyze the level of risk involved in investment vehicles and define an inherent optimal allocation mix in terms of unrestricted Markowitz efficient frontier analysis.
  4. Relate risk to return using multifactor asset pricing models.
  5. Use options and futures contracts for tactical portfolio strategies and portfolio risk management purposes
  6. Determine the performance of a portfolio using simple and multistage performance measures.
  7. Define Bond risk in terms of effective duration and convexity.
  8. Use and analyze advanced bond portfolio management techniques.
  9. Relate companies’ performance to market and industry effects.
  10. Price equities.
  11. Discuss, analyze and apply advanced portfolio management strategies to a virtual portfolio.


Course Outline

The field of finance can be viewed from three perspectives:

  1. Individual market agents making decisions to supply capital to markets;
  2. Firms demanding capital from the market and deciding how to raise funds;
  3. The capital market acting as a pricing mechanism to clear demand and supply.

A course in investments focuses on (1) and (3). We examine how individuals and their agents make choices among investment alternatives which have uncertain payoffs over multiple time periods. An understanding of risk and return for individual securities andportfolios of securities is used to characterize these decisions. We then evaluate financial decision making in aggregate, for the market as a whole, to describe the process of valuation for different securities.

These fundamental "building blocks" are then applied to different financial instruments including fixed income securities, common stocks, and mutual funds. As a required course for a finance specialization, its primary objective is to offer a broad overview of investment issues. The course is designed to combine some basic principles with practical and topical applications in the form problems and investment reports. Topics to be covered:

 I. BACKGROUND. 
     1. Introduction to Modern Investment Theory. 
     2. Measuring Risk, Return, and Higher Moments.
 II. PORTFOLIO MANAGEMENT. 
     3. Finding the Efficient Set. 
     4. Factor Models. 
     5. Asset Allocation.
 III. ASSET PRICING THEORIES AND PERFORMANCE MEASUREMENT. 
     6. The Capital Asset Pricing Model. 
     7. Empirical Tests of the Asset Pricing Model. 
     8. The Arbitrage Pricing Theory.
     9. Measuring Portfolio Performance with Asset Pricing Models. 
    10. Measuring Performance without Asset Pricing Models.
 IV. INTEREST RATES AND BOND MANAGEMENT. 
    11. Bond Risk.
    12. Bond Portfolio Management. 
    13. Interest Immunization.
 V. STOCK VALUATION, AND MARKET EFFICIENCY.
    14. The Effect of Taxes on Investment Strategy and Securities Prices.
    15. Stock Valuation and Equity Portfolio Strategies.
    16. Market Efficiency: Concept and Evidence.
 VI. ADVANCED TOPICS RELATED TO THE USAGE OF DERIVATIVES IN PORTFOLIO MANAGEMENT


Required Assessment

This course will contain a portfolio simulation project, which focuses upon the creation and the maintenance of a portfolio, which theme must be assigned by the instructor. The primary objective will be to apply techniques of allocation, selection and protection as well as to track and measure the performance of the portfolio. More specifically, students will use various statistical tools in their analyses and with primary and secondary data resources available in the Raub Trading Room.

In any semester it is expected that the professors teaching this course will assess at least 75 percent of the learning objectives.


Recommended Assessment Measure

The following assessment measures might be used:

  1. The use of problems, essays or cases on the midterm and final to assess selected learning objectives.
  2. The use of case studies or other practical assignments focused on selected learning objectives.
  3. A complete report on the investment activity for the portfolio simulation project.
  4. An oral presentation of the portfolio simulation project.


Statement of Expectations

Students are expected to take an active role in their learning experience and will be expected to read the assigned material and complete written assignments prior to class.

Students should actively participate in class and attempt to use the language of finance and business as they express their questions and ideas.

Since this course will focus on understanding the material and developing the ability to understand its use, students need to allocate sufficient out-of-class time and effort to prepare for in-class activities.


Course Prerequisite

Since FINC-432, Portfolio Management is a senior level Finance course designed to provide students with advanced understanding of Finance theory and practice, the course requires a background in Investments and principals of Finance. Therefore, the prerequisite is FINC-315.


Institutional Mechanism for Providing Feedback for Continuous Quality Improvement

The Department of Finance will annually review the results of assessment from this course and assess their implications for the program students are enrolled in. We will respond in the following manner: seek additional information, and/or alter the course to improve outcomes, and/or discuss deficiencies with other departments providing components of the program that might more directly confront the outcomes observed.