MSc in Economics and Business Administration in Finance and Investments
Investments
About the course
What you will learn
The course aims at providing students with the institutional information, the models, and the computational methods relevant for a systematic approach to investment decisions. The overall goals are: (1) Explain and discuss the concepts, theories, models, and methods for portfolio selection, risk measurement and management, and the pricing of stocks and bonds as discussed during the course. (2) Apply the concepts, theories, models, and methods to realistic problems. (3) Implement relevant models and methods using Excel or similar computational tools. More specific goals may include:
- (a) Explain, apply, and relate various return concepts; perform relevant return calculations involving different investment horizons, probability distributions, moments, Sharpe ratios, and tail risks. Estimate means, variances, covariances, and correlations of returns from historical data.
- (b) Explain and perform relevant calculations of portfolio returns and their moments using vectors and matrices, and implement such calculations in Excel. Explain the mechanism of risk diversification.
- (c) Explain, apply, and implement relevant concepts, theories, models, and methods relevant for prices and risk measures of bonds such as: no-arbitrage relations among bonds; yields, yield curves, and forward rates; duration, convexity, and immunization.
- (d) Explain, apply, and implement relevant concepts, theories, models, and methods relevant for prices and risk measures of stocks such as: dividend discount models; price-dividend ratios and price-earnings ratios; equity duration.
- (e) Explain and implement (in Excel) Markowitz' mean-variance model of portfolio choice both without constraints (using closed-form expressions for the relevant portfolios) and with constraints (using the Solver in Excel). Discuss the validity of the model assumptions and practical issues in its implementation.
- (f) Explain how portfolio rebalancing, time-varying investment opportunities, human capital, and housing considerations affect optimal investment decisions. Apply and implement Merton's basic model for long-term investments as well as the extension of the mean-variance model to human capital and housing.
- (g) Explain and apply the CAPM, the APT, the Single-Index model, and leading multi-factor pricing models - including their implications for portfolio decisions. Estimate betas and other parameters using historical data. Describe stylized facts on historical returns on stocks and discuss how these stylized facts fit with the pricing models.
- (h) Explain and discuss the role of capital markets and market efficiency as well as non-classical theories of investor behavior and their influence on asset prices.
- (i) Explain, apply, and implement models for active portfolio management as well as measures of portfolio performance.
- (j) Discuss the role of ESG issues for investment decisions and apply and implement models for portfolio decisions with ESG considerations
- (k) Carry out relevant mathematical derivations similar to those seen in the course.