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2020/2021  KAN-COECV2027U  Asset Management and Hedge Fund Strategies

English Title
Asset Management and Hedge Fund Strategies

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 130
Study board
Study Board for MSc in Advanced Economics and Finance
Course coordinator
  • Lasse Heje Pedersen - Department of Finance (FI)
Main academic disciplines
  • Finance
Teaching methods
  • Face-to-face teaching
Last updated on 06-02-2020

Relevant links

Learning objectives
The grading of the class is based on the students’ proven ability to understand active investment strategies and analyze them using rigorous quantitative methods. This includes, among other things, the following issues:
  • Understanding each of the trading strategies covered in class, including an ability to analyze them conceptually, mathematically, and in the context of specific examples. (This is an important part of the class.)
  • Understanding why strategies might work, and why they might not.
  • Computing performance measures and critically evaluate the output.
  • Simulating backtests of investment strategies.
  • Understanding liquidity and transaction costs, and deriving the net returns in a backtest.
  • Understanding margin requirements, computing an investment strategy’s capital use, including knowledge of when it would receive a margin call.
  • Applying regression analysis, including in return forecasting
  • Understanding biases, including being able to avoid such pitfalls as look-ahead bias, selection bias, and survivorship bias.
  • Knowledge of the historical events connected to asset management, hedge funds, and markets covered in class.
  • Working independently on projects involving mathematical analysis and data analysis
  • Generalizing arguments, methods, and concepts to problems that have not been analyzed explicitly throughout the course.
  • Ability to reason independently about strategies that go beyond what is discussed explicitly in class, e.g., analyze the effects of a novel type of corporate action.
Course prerequisites
1. Please note that this course is taught at an elite level. More specifically, students are required to have taken Portfolio Theory (FIR) or Financial Markets and Instruments (FSM) or Capital Market Theory (AEF) or Asset Pricing (cand.oecon.) or Corporate Finance and Incentives or Asset Pricing Theory (cand.polit.). Graduate students in MØK and cand.scient.oecon. must have completed at least their bachelor courses in finance.

2. Please send in a motivational letter (max. 200 words), arguing why you want to participate and highlighting your grades in Finance, and a 1 page graduate grade transcript. Send this to: ily.stu@cbs.dk before the registration deadline for elective courses. You may find the registration deadlines on my.cbs.dk ( https:/​/​studentcbs.sharepoint.com/​graduate/​pages/​registration-for-electives.aspx ).

Please also remember to sign up through the online registration.
Examination
Asset Management and Hedge Fund Strategies:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Multiple choice
Duration 3 hours
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Winter
Aids Limited aids, see the list below:
The student is allowed to bring
  • Non-programmable, financial calculators: HP10bll+ or Texas BA II Plus
  • Language dictionaries in paper format
The student will have access to
  • Advanced IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Description of the exam procedure

The exam answer is made in Excel and should be uploaded as an Excel file.

Course content, structure and pedagogical approach

The class describes some of the main investment strategies used by active investors such as investment management firms, asset management divisions in banks, hedge funds, and proprietary traders. Further, the class provides a methodology to analyze these investment strategies. In class and through exercises, the strategies are illustrated using real data and students learn to use “backtesting” to evaluate a strategy. The class also covers institutional issues related to liquidity, margin requirements, risk management, and performance measurement.
 
The class discusses the main strategies used by active investors in individual equity markets (equity long-short, equity market neutral, dedicated short bias), in tactical asset allocation of equity indices, currencies, fixed-income, and commodities (global macro, managed futures), and in relative-value arbitrage strategies (event driven investments, convertible bond arbitrage, fixed income arbitrage).
 
To analyze these active investment strategies, the class applies tools for performance measurement, backtesting, regression analysis, managing transaction costs, market liquidity risk, funding a strategy, margin requirements, risk management, drawdown control, and portfolio optimization. Also, the class discusses the economics underlying these strategies, why certain strategies might work and why others might not.

The class is quantitative. As a result of the techniques used in state-of-the-art investments, the class requires the students to work independently, analyze and manipulate real data, and use mathematical modeling.

Description of the teaching methods
The course is based on lectures, including class discussion and problem solving. Students are expected to be prepared for class (including reading material and solving problem sets) and to participate actively in the discussion and problem solving.

The course has 36 class hours.
Feedback during the teaching period
Class feedback discussions after assignments.
Student workload
In-class learning 36 hours
Exam 3 hours
Preparation and problem sets 167 hours
Expected literature

The course aims at teaching a broad set of active investment strategies from a rigorous academic perspective. The class is based on a recent book written by prof. Lasse Heje Pedersen titled “Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined.”; Princeton University Press, 2015, and may be supplemented with additional papers and/or case studies.

Last updated on 06-02-2020