Porfolio theory

Teacher(s)

Thewissen James;

Language

English

Main themes

In the first part of the course, students will be introduced to the major aspects of the financial environment; market actors, negotiated financial assets and market organisation, the role of public investment funds and asset management companies. The second part is focused on the modern theory of portfolio management: - modelling investors' attitude in the face of risk and optimum allocation of wealth between the various financial assets, primarily the CAPM - practical aspects of the use of the CAPM using the market model (or Sharpe one-factor model) and multi-factorial models (only those based on macroeconomic data), - the determination of the risk premium required by investors in a balanced market is analysed in the third part. The Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) are also introduced, - discussion of market efficiency and investor behaviour. New developments in the theory incorporating the dimension of investor behaviour are presented. The fourth part focuses on the evaluation of basic financial assets in company financing; shares and bonds. The maximization principle (the value of a financial asset is equal to the hope of future cash flows set against the return expected by the investor) is applied to bonds and ordinary shares. The fifth part is devoted to active portfolio management and the evaluation of portfolio performance. A distinction is made between the performance measure leading to a portfolio classification and the performance attribution which involves management control and which aims to identify the operating decisions which make it possible to carry out an excess return in relation to a benchmark. The sixth and last part of this course introduces derivative financial instruments and their use in the management of investor-incurred risk. The organisation of these markets, the valuation of these instruments and the development of complex strategy are dealt with in advanced courses given in the third and fourth year.

Content

 

Teaching methods

1. In-class interactions introducing financial markets and trading.
2. Practical case studies to familiarize students with trading on financial markets (supported by coaching sessions).
3. Guest interactions with experts in the field (e.g., financial regulators) to discuss the overall evolution of financial markets.

Evaluation methods

• Students will form groups of five.
• The homework deadline will be communicated at the start of the course.
• Homework counts for 60% of the final grade.
• The homework presentation is part of the overall examination. Failure to present or to provide a presentation will result in a grade of zero for this component.
• Attendance at coaching sessions is tracked. The final grade is adjusted according to attendance.
  • Example: if you attend 10% of the sessions, your individual grade will be 10% of the overall homework grade.
  • Note: the homework presentation is not part of the coaching sessions.

• The written exam contains:
  A multiple-choice section & Exercises to solve.
• More information on the type of questions will be provided in class.
• The written exam counts for 40% of the final grade.

• Students retaking the course in August must submit an individual homework, following the same guidelines as in June.
• They must also take a written exam consisting of multiple-choice questions; open questions may also be included.
• Grade weighting for the August session:
  Written exam: 80% & Homework: 20%

Other information

Students must acknowledge the use of artificial intelligence (AI) in the text for the parts where they have used it. They must clearly cite the paragraphs/parts where AI has been used. A failure to acknowledge the use of AI is considered fraud if detected by the similarity detection tools used by the instructor.
The group members are all jointly responsible for the work that they hand in on Moodle and are informed that any piece of work is part of the formal examination of the course.  

Online resources

All useful resources will be provided at the beginning of the year. We will also take time in class to present and discuss the videos and other materials that will support the learning process.

Bibliography

Support : Ouvrage de référence utilisé pour mieux aider à comprendre le contenu : (BKM): Bodie, Kane and Marcus, Investments, 5th ed, McGraw-Hill, 2002 (ISBN 0-07-112305-9)

Teaching materials

• Slides provided in class.

Faculty or entity

> ESPO