| 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.
|
| Examination |
|
Financial
Market Theory:
|
| 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) |
One internal examiner |
| Exam period |
Autumn |
| Aids |
Open book: all written and electronic aids,
including internet access
|
| 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 |
| 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.
Students may be offered a voluntary assignment with 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 |
| Review of mathematics and statistics |
8 hours |
| Exam |
4 hours |
| Final preparation for exam |
11 hours |
|
| Expected literature |
|
Munk: Financial Markets and Investments, Lecture notes, 2023.
Supplementary articles or text book chapters.
|
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