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2023/2024  KAN-CFIAO1003U  Investments

English Title
Investments

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for cand.merc. and CFIA (CFIA)
Course coordinator
  • Claus Munk - Department of Finance (FI)
Main academic disciplines
  • Finance
Teaching methods
  • Blended learning
Last updated on 02-06-2023

Relevant links
Learning objectives
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 theories and models to realistic problems.
(3) Implement relevant models using Excel or similar computational tools.

More specific goals may include:
  • (a) Explain, apply, and relate various return concepts; make 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 relevant calculations of portfolio returns and their moments using vectors and matrices, and implement such calculations in Excel - and 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.
Prerequisites for registering for the exam (activities during the teaching period)
Number of compulsory activities which must be approved (see section 13 of the Programme Regulations): 1
Compulsory home assignments
The student must get 1 out of 2 assignments approved in order to attend the ordinary exam. Students work individually on the assignments and submit answers in the form of an online multiple choice test.

Students will not have extra opportunities to get the required number of compulsory activities approved prior to the ordinary exam. If a student has not received approval of the required number of compulsory activities or has been ill, the student cannot participate in the ordinary exam.
If a student prior to the retake is still missing approval for the required number of compulsory activities and meets the pre-conditions set out in the program regulations, an extra assignment is possible.

The extra assignment is a 10 page home assignment that will cover the required number of compulsory activities. If approved, the student will be able to attend retake.
Examination
Investments:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-point grading scale
Examiner(s) Internal examiner and external examiner
Exam period Autumn
Aids Open book: all written and electronic aids, including internet access
Read more here about which exam aids the students are allowed to bring and will be given access to : Exam aids and IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
The number of registered candidates for the make-up examination/re-take examination may warrant that it most appropriately be held as an oral examination. The programme office will inform the students if the make-up examination/re-take examination instead is held as an oral examination including a second examiner or external examiner.
Course content, structure and pedagogical approach

The course develops a deep understanding of financial markets and how investors use the securities traded in financial markets. The course covers the following topics:

  • Measuring risks and returns over different investment horizons
  • Fixed income securities, bond pricing, the term structure of interest rates, and interest rate risk management
  • Basic stock pricing models
  • Portfolio theory and, in particular, mean-variance analysis
  • CAPM, factor models and consequences for portfolio choice
  • Introduction to utility functions and risk aversion
  • Introduction to multi-period investment strategies and life-cycle investments
  • Stylized empirical facts about returns on financial assets
  • Pricing anomalies, market efficiency, and behavioural finance
  • Active portfolio management
  • ESG investing
  • Excel is used throughout the course wherever relevant
Description of the teaching methods
Lectures, videos, exercises, assignments
Feedback during the teaching period
Quizzes are offered throughout the course with the purpose of giving the students a quick indication of their understanding of each topic.

The mandatory assignment quiz provides a quantitative feedback on each student's understanding.

Solutions to the exercises discussed in the exercise session are available to students giving them a chance to check their ability to solve relevant problems.

Students are encouraged to take active part in both lectures and exercises by contributing with questions and comments. The teachers will do their best to provide useful immediate feedback.

Students can meet the teacher for a one-to-one discussion during the weekly office hours.
Student workload
Lectures 33 hours
Preparation for lectures 66 hours
Exercise classes 24 hours
Preparation for exercise classes 60 hours
Exam 4 hours
Final preparation for exam 11 hours
Assignments 8 hours
Expected literature

Munk: Financial Markets and Investments, Lecture notes, 2023.
Supplementary articles or text book chapters.
Last updated on 02-06-2023