Finance 412 Investment Principles (A1,2,3)
Fall 2009
Instructor: Jung-Wook Kim Office: BUS 1-23 B
Phone: 492-7987
e-mail:[email protected] Office Hour: Thursday 15:30-17:30 Lectures:
A1 M W F 1300-1350 BUS 1 10 A2 M W F 1400-1450 BUS 1 9 A3 T R 1400-1520 BUS 2 5
Course Description
This course presents the analytical tools, financial theory and empirical evidences necessary for making good investment decisions and for understanding the pricing of financial securities.
Specifically, this course will cover asset allocation problem, international investment, capital asset pricing model (CAPM), factor pricing model, efficient (or inefficient) market hypothesis, money management industry.
The course’s prerequisite is FIN 301 and co-requisite is MGTSC 352. Basic mathematics and statistics (including regression analysis) knowledge will be helpful in understanding some materials. Necessary statistics tools will be provided in lectures as needed.
Course Requirements
The course requirements include a midterm exam, a final exam and three problem sets.
Your overall grade will be calculated as Homework: 30 %
Midterm: 30 % Final: 40 %
Homework Policy
You are encouraged to work on the assignments in groups of up to four people. Only one
(preferably typed) assignment need be submitted for each group. Each member of the group will receive the same grade on the problem set. On the cover page, list the problem set number and the names of all the people in your group.
Homework will be due at the beginning of class on due date. I will not accept any delayed home under any circumstances. No submission after 10 minutes of lecture of the due date will be accepted. This may be a good reason to form a group (Don’t put all your eggs in one basket!)
Don’t free-ride on other members of group! Once you have finished discussing the
assignment with the others, make sure that you would be able to tackle any of the questions on the problem set by your self. Exam questions may draw on concepts practical in any of the problems in the assignments.
Homework consists of analytical and empirical questions. Excel examples will be discussed in class for empirical analyses.
Exam Policy
Exams are scheduled as follows:
Midterm:
For A1 and A2, October 21, in class (50min exam) For A3, October 22, in class (50min exam)
Important Note) No class on Friday, October 23 due to conference Final Exam (location TBA):
A1 MWF 1300 Tuesday Dec. 8 at 2 pm A2 MWF 1400 Thursday Dec 10 at 2 pm A3 T R 1400 Monday Dec. 14 at 2 pm
If you miss your mid term exam, your mid term score will be zero. If you have a valid reason (doctor’s written opinion or equivalent evidence are required in case of illness or family urgency) your final exam will get 70% weight. No compensating exam will be available for midterm and final exam.
Both midterm and final exam will cover lectures and assigned readings (textbook and reading packet as well). Final exam covers all the lectures of the course. Both exams are closed book exams. However you are allowed to bring a letter sized paper where you could write whatever you want (formulae, lecture notes, summary of readings etc.).
Course Web Page
Course web page for Fin 412 sections A1- A3 is available. From this web page, you will download lecture notes, problem sets, data, and relevant articles. You can also check important announcements.
Textbook
Each lecture note is self-contained. However, the following textbook might be very useful in understanding the course material. The book is available from the U of A book store.
Investments
by Bodie, Kane, Marcus, Perrakis and Ryan (6th Canadian edition, McGraw-Hill, 2008) -henceforth BKMPR.
The following book written by Jeremy Siegel (Wharton School Professor) is an excellent reading on the stock market
Stocks for the Long Run (4th Edition, McGraw Hill, 2007) by Jeremy J. Siegel.
Parts of important chapters of the book are available from the course packet (see below for the information on the course packet).
If you are interested in psychological aspect of investing, refer
The Psychology of Investing (3rd edition, Pearson Prentice Hall, 2008) By John R. Nofsinger.
Again, parts of important chapters of the book are available from the course packet.
The Course Packet
I have assembled reading packet for the course. Some exam questions will be based on articles in this packet. The packet consists of background articles from academic and non academic
journals.
Course Outline
1. Overview of the course
“Rational Strategies for Irrational Times”, The Portfolio Advisor, 2003, RBC- investment.
2. Risk and Return: A historical perspective
BKMPR Chapter 5 (5.1-5.5, and part of 5.7 (pp154-157)).1
“The Stock Market Level in Historical Perspective”, Irrational Exuberance, Robert J.
Shiller, Princeton University Press, 2000, pp3-14.
“Technical and Fundamental Analysis” in A Random Walk Down Wall Street, by Burton G. Malkiel, 1996, pp115-136.
Chapter 17 from Stocks for the Long Run, 3rd edition, pp283-297.
“Asset Allocation-Have Investors Got it Wrong?”, (Barberis), Financial Times, June 1997.
Chapter 2 from Stocks for the Long Run, 3rd edition, pp25-29.
“Anomalies: The Equity Premium Puzzle”, (Siegel and Thaler), Journal of Economic Perspectives, Winter 1997.
1 “BKMPR Chapter 5 (5.1-5.5, and part of 5.7 (pp154-157))” indicates that you do not need to read the whole chapter for this lecture. You only need to read sections from 5.1 to 5.5, and part of section 5.7, i.e., from page 154 to 157.
“Overconfidence” in The Psychology of Investing, 2nd edition, pp 10-21,2005.
3. Asset pricing and Present Value Formula
Chapter 11 from Stocks for the Long Run, 3rd edition, pp194-202.
Chapter 14 from Stocks for the Long Run, 3rd edition, pp229-231.
4. Asset Allocation I: One Risky Asset
BKMPR Chapter 6 (Part of 6.1 (pp171-178), and 6.2-6.6).
“Portfolio Strategy”, (Cohen), Goldman and Sachs, November 1996 “Price-Earnings Ratios and Market Forecasts”
5. Asset Allocation II: Many Risky Assets BKMPR Chapter 7
6. Practical Asset Allocation 7. Investor Behavior
The Psychology of Investing, John R. Nofsinger, Pearson Prentice Hall, 2005 8. International Investments and Investment Horizons
BKMPR Chapter 23 (Part of 23.2 (pp854-862), part of 23.3 (pp866-873)).
Notes on International Investments
9. The Capital Asset Pricing Model and Applications BKMPR Chapter 8 (8.1-8.3).
“Revisiting the Capital Asset Pricing Model” by Burton, Dow Jones Asset Manager, 1998.
10. Factor Models of Risk and Return BKMPR Chapter 9 (9.1, 9.9-9.11).
11. Efficient Market
BKMPR Chapter 10, part of chapter 11 (pp 348-359).
Chapter 19 from Stocks for the Long Run, 3rd edition, pp315-337.
“Giving Markets a Human Dimension”, (Thaler), Financial Times, June 1997.
“Is That a $100 Bill Lying on the Ground? Two views of Market Efficiency”, Finance and Investment , Wharton School of Business.
“Markets: The Price may not be Right”, (Barberis), Financial Times, June 1997.
“Anomalies: The January Effect”, (Thaler), Journal of Economic Perspectives, June 1987.
“Anomalies: A Mean-reverting Walk down Wall Street”, (Thaler), Journal of Economic Perspectives, December 1989.
“Closed-End Mutual Funds”, (Lee, Shleifer, Thaler), The Winner’s Curse, 1992.
“Are Markets Efficient?”, Wall Street Journal, December, 2000.
“Behavioral Finance and the Psychology of Investing” from Stocks for the Long Run, 3rd edition, pp315-337.
“Behavioral Finance at JP Morgan” (Baker and Sesia Jr.), Harvard Business School, 2007.
“Investor Sentiment and Stock Returns” Fisher and Statman, 2000.
“A review of Asset Pricing Models” by N. Barberis.
12. The Money Management Industry
“The Elusive Butterfly of Superior Returns”, (Barber, Leftwich), Financial Times, June 1997.
A Review of Asset Pricing Models
