MSB 205 Investments

Syllabus (preliminary) Spring 2023


From the course description


Summary

This course discusses investment decisions, in particular material relevant for portfolio managers. Topics include potential investment vehicles (investable assets), the trading environment (asset markets) and portfolio analysis (risk/return tradeoff). Particular emphasis is on the pricing of assets, such as stocks and bonds, portfolio evaluation, and market efficiency.

Content

Examples of subjects typically covered are

Learning Outcome

Knowledge

Upon completion of the course students will gain knowledge of:

Skills

Upon completion of the course, students will be able to

Textbook

Bodie, Kane, Marcus: Investments


Investments

This is a first course in investments and capital markets. It introduces a number of key building blocks necessary for the analysis and valuation of financial securities, such as portfolio theory, diversification, arbitrage, equilibrium asset pricing models (CAPM), market efficiency, the term structure of interest rates, performance evaluation and analysis of derivative securities (forward and option contracts).

To work in finance it is at times necessary to go into analysis that is pretty technical. Many of the building blocks we talk about in an investment course are of a technical nature, material that is necessary to understand at a deep level. The lectures in this course will be concentrated on those key concepts.

The teaching plan below shows the list of topics to be covered.

Teaching Plan

The teaching plan is preliminary, expect changes to sequence of presentation. Note that the teaching day-of-the-week is wednesdays (it has moved from tuesdays).

Lecture Week Date Topic Readings
1 2 11 jan Asset classes BM 1,2,3
Trading of securities
Returns
2 3 18 jan Risk and return BM 5, 6, 7
Portfolio construction
Diversification
3 4 25 jan Asset pricing models BM 9, 10
4 5 1 feb Interest Rates BM 14, 15
Bond Prices
5 6 8 feb Bond portfolios BM 16
Term structure
6 7 15 feb Equity valuation models BM 18
Firm Valuation
Performance Evaluation BM 24
7 8 22 feb Performance Evaluation ctd
Efficient markets BM 11, (12), 13
Cross-section of stock returns
Bond Credit Portfolio Management
Guest Lecture
Jørgen Krog Sæbo, Folketrygdfondet
8 9 1 mar Managing by index BM 2.4, BM 8
International Portfolios BM 25
Case: The returns of the Norwegian Oil Fund
9 10 8 mar The ESG revolution in institutional investing
Case: ESG in the oil fund
10 11 15 mar Active portfolio management BM 27
Mutual funds, ETFs, Alternative asset classes BM 4
PE, Commodities, Crypto, Real estate, etc
11 12 22 mar Derivatives intro BKM 20-23
12 13 29 mar Derivatives ctd. Hedging
Derivatives as Investment objects
14,15 Easter break, no classes
13 16 19 apr Summary and exam preparation

Course Requirements

You need to get a pass on four out of five problem handins to take the exam.

The handins should be done on an individual basis, and uploaded on canvas.

Handin dates:

1 2 feb
2 22 feb
3 15 mar
4 29 mar
5 19 apr

The grade is based 100% on the final exam.

Course Specifics

The material for the course is the textbook by Bodie, Kane and Marcus. It is extensive, with lots of institutional detail. The lectures attempt to distill the most important concepts. The lectures are accompanied by lecture notes on Canvas. Note the sequence of presentation. Before the lecture the notes are mainly problems that will be gone through in class. To get the most of the lectures, look at the problems, think about how to answer the questions before class. (Ideally: solve them before class, and feel superior when following the class.) After the class full lecture notes (with solutions) will appear.

Your most important task in this class is to work problems. It is impossible to understand much of this material without actively applying the concepts in actual calculations. Here it may be useful to get together with other students to discuss problems, but that is up to you, there are no official groups being formed.

There are several sources of problems: With each of the lecture notes you will find a problem set, which provides exercises relevant for that lecture. Solutions to those exercises will be forthcoming a few weeks after that week’s lecture. The textbook has numerous end-of-chapter problems, with solutions to selected concept checks.

Finally, there will be a set of compulsory handins. I plan on providing five handins. You will have to get a pass on four of the five in order to take the exam. These handins should be done on an individual basis.

The study of investments is inherently quantitive, and it is necessary to use various computer tools, particularly when estimating inputs to calculations. There are two types of tools which will be referred to in the course. For basic calculations, a spreadsheet like Excel is an excellent tool. Spreadsheets should be well known, and will not be covered in detail in lectures. What will be discussed at some points during the lectures is R. This statistics package is currently the prime tool for the more quantitative parts of the finance industry, having replaced Excel in most quant shops. As you have been exposed to R in your methods course, it is natural to talk about how R is used in finance. So some of the material will have separate lecture notes illustrating R usage. Some of the problems will have solutions in R.

The final exam will not require any computer tools beyond a basic calculator.

Administrative details

The course Canvas page will be used actively. It contains announcements, links to lecture notes, and is where the handins are to be uploaded.

Final Exam

The current plan for the exam date is 5 may 2023.

Frequently Asked Questions