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    Investment & Portfolio Management

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    Hamza Chaudhary
    The document provides an outline for a course on investment and portfolio management. It covers topics like efficient capital markets theory, portfolio theory, asset allocation, security analysis, and the capital asset pricing model. It also discusses different types of financial assets and markets, the investment process, and required rates of return.

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    Investment & Portfolio Management

    Uploaded by

    Hamza Chaudhary
    15 views12 pages
    The document provides an outline for a course on investment and portfolio management. It covers topics like efficient capital markets theory, portfolio theory, asset allocation, security analysis, and the capital asset pricing model. It also discusses different types of financial assets and markets, the investment process, and required rates of return.

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    Investment Environment

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    The document provides an outline for a course on investment and portfolio management. It covers topics like efficient capital markets theory, portfolio theory, asset allocation, security analysis, and the capital asset pricing model. It also discusses different types of financial assets and markets, the investment process, and required rates of return.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    15 views12 pages

    Investment & Portfolio Management

    Uploaded by

    Hamza Chaudhary
    The document provides an outline for a course on investment and portfolio management. It covers topics like efficient capital markets theory, portfolio theory, asset allocation, security analysis, and the capital asset pricing model. It also discusses different types of financial assets and markets, the investment process, and required rates of return.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Investment & Portfolio

    Management
    Broad Course Outline
    • Introduction
    • Understanding nature of financial assets/ investment options
    • Understanding basic mechanism of securities markets
    • Efficient Capital Markets vs. behavioral finance
    • Measurement of Risk and Return
    • Portfolio theory & asset allocation
    • Capital Asset Pricing Model (CAPM)
    • Security analysis – Macroeconomic analysis, industry analysis, stock
    valuation
    • Technical Analysis
    Text Books
    • Investments by Bodie, Kane, & Marcus
    • Investments: Analysis and Management by Charles P. Jones
    • Investment Analysis & Portfolio Management by Reilly & Brown
    Introduction
    • Investment: Current commitment of money or other resources in the expectation of reaping future
    benefits.
    • Stocks, Bonds, Real Estate, Derivatives
    • Portfolio: Collection of investment to achieve investment objectives.
    • Return, Risk, & Liquidity
    • Real Assets: Produce goods & services in an economy.
    • Land, Building, Plant & Machinery, Knowledge
    • Financial Assets: Represent claim on real assets (income generated by real assets), do not have any
    productive capacity
    • Stocks, Bonds etc.
    Investors buy financial assets Companies use this money to invest in real assets Real assets define
    productive capacity of an economy – financial assets represent allocation of income/wealth among
    investors

    *This course focuses more on financial assets.


    Financial Assets
    1. Fixed Income/ Debt securities: Promise either a fixed stream of income or a
    stream of income determined by a specified formula.
    1. Money Market – Short term – liquid – low risk securities
    2. Capital Market – Long term – varying risk securities
    2. Equity: Represents an ownership stake in the firm.
    3. Derivatives: Payoffs/ value is determined on the bases of prices of other
    securities/ assets – used for hedging risk
    1. Forwards
    2. Futures
    3. Options
    4. Swaps

    Payoffs/ success of financial assets depends on productive capacity of real assets.


    Required rate of return

    Required return = Risk Free Rate + Risk Premium


    Rit= Rf +RP
    Where

    Rf = Real Risk Free Rate + Inflation Premium

    Capital Asset Pricing Model – CAPM


    Rit= Rf + 𝛽(Rm – Rf)
    Financial Markets and Economy
    • Informational role of Financial Markets
    • Help to allocate capital to most efficient use
    • Consumption timing
    • Time consumption according to saving & consumption needs
    • Allocation of risk
    • Providing various alternatives in accordance with risk tolerance of investors
    • Separation of ownership and management
    • Stable form of business firm – Owners may change, management remains the same
    • Potential agency problems – overinvestment and wasteful behavior
    • Aligned compensation
    • Board of directors
    • Institutional investors
    • Takeovers
    • Corporate governance and corporate ethics
    • Agency issues – Frauds in financial disclosure
    • Analysts reports – quid pro quo
    • Role of Auditors
    Investment process
    • Portfolio construction
    • Asset allocation – which asset to choose from: Bonds, stocks, real estate
    • Security selection – Choosing between different securities of same asset class
    • Approaches
    • Top-Down approach – Starting with asset allocation
    • Bottom-Up approach – Starting with security selection
    Financial Markets
    • Markets are competitive
    • Risk-Return trade off – More risk More return
    • Markets are efficient – All relevant information is quickly and
    efficiently reflected in stock prices
    • Weak form efficiency – Past volume & Prices
    • Semi-Strong form efficiency – All publically available information
    • Strong form efficiency – All public & private information
    Active vs. Passive Investment
    *Markets are efficient because so many people think that they are not.
    Players in Markets
    • Firms – Demand capital
    • Public/ Household – Suppliers of capital
    • Governments – demand or supply –
    mostly demand funds
    Facilitators/ Channels
    1. Venture capital and private equity
    2. Investment bankers - Help or manage
    security issuance in primary markets
    • IPO (Initial Public Offering)
    • SEO (Seasoned Equity Offering)
    3. Financial intermediaries – banks,
    insurance companies, investment
    companies – issue their own security
    to supplier of funds
    Assignment
    Read and provide description of:
    • Dot Com bubble of 2001 – one page max
    • Financial crisis of 2008 – one page max

    Submit your work to your CR by next Thursday, April 29, 2021.


    CR will make a zip file and email me on the same date. No late
    submissions will be entertained.

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