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2012/2013  KAN-AEF_AE57  Capital Market Theory

English Title
Capital Market Theory

Course information
Language English
Exam ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Semester
Course period Autumn
Time Table Please see course schedule at e-Campus
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Søren Hvidkjær - Department of Finance
Claus Munk - Dept. of Finance
Main Category of the Course
  • Economics, macro economics and managerial economics
Last updated on 10-07-2012
Learning objectives
The topics we will explore include the following:
• the basics of risk and return
• the investment process and the importance of asset allocation
• how markets operate
• portfolio theory and how to form optimal portfolios
• equilibrium models of security prices
• security price anomalies such as the size, book-to-market, and momentum effects in stock returns
• the behavioral approach to finance and its role in understanding price anomalies
• performance evaluation of mutual funds and hedge funds
• the role of fixed income securities in the portfolio
• the use and valuation of derivatives

Upon completion of the course the student should be able to:
• compute portfolio mean returns, variances and covariances with and without the use of linear algebra
• estimate mean, variance, covariance, beta and multi-factor betas based on historical returns
• understand alternative risk measures
• characterize the efficient frontier under restrictions on short sale and borrowing
• work with measures of risk aversion, portfolio choice and other decisions within the framework of expected utility
• understand and work with models of expected returns
  • define, compute, work with and understand the limitations of performance measures
  • decompose performance
  • understand the different tests of the main asset pricing models
  • understand limit-to-arbitrage problems and related trading strategies
  • explain the major findings regarding investor behavior and related trading strategies
  • set up central problems in Excel, including numerical optimization and linear regression
  • interpret optimization and regression results from Excel
  • explain institutional setup of the financial markets
  • characterize the relevant features of stocks, bonds and derivatives
  • define and work with bond yields and with duration and convexity
  • understand and work with the term structure of interest rates and forward rates
  • understand the structure, usage and valuation of derivatives
Examination
Capital Market Theory
Capital Market Theory:
Type of test Written Exam
Marking scale 7-step scale
Second examiner No second examiner
Exam period December/January
Aids Closed Book
Duration 4 Hours
The exam has the form of an individual 4-hour closed book exam (i.e. neither written materials nor technical aids are allowed at the exam, except from non-electronic language dictionaries and Texas Instruments TI-30X IIS (solar), Texas Instruments TI-30X IIB (battery), TI-30X IIS/IIB, TI-30XS MultiView and TI-30XB MultiView). Cf. The Regulations for written tests at CBS. The regular exam takes place in December. The make-up/ re-exam takes place in February.
Course content

The objective of the course is to develop a deeper understanding of the role and inner workings of financial markets and financial instruments such as stocks, bonds, and derivatives. We will place particular emphasis on helping you develop a systematic way of thinking about and making investment decisions.
Teaching methods
Lectures with exercices.
Expected literature

Preliminary literature.
Bodie, Kane and Marcus, Investments and Portfolio Management, McGraw-Hill, 9th edition, 
Last updated on 10-07-2012