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Investment Analysis & Management

This course covers investment and portfolio management, including understanding financial assets and securities markets, portfolio theory, the capital asset pricing model, security analysis, and technical analysis. Topics include efficient markets, risk and return measurement, asset allocation, and debt versus equity securities. The investment process involves portfolio construction through asset allocation and security selection. Financial markets are analyzed in terms of their role in allocating capital, allowing consumption timing, allocating risk, and corporate governance issues. Players in the markets include firms, households, governments, and various facilitators.

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Subhan Imran
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77 views11 pages

Investment Analysis & Management

This course covers investment and portfolio management, including understanding financial assets and securities markets, portfolio theory, the capital asset pricing model, security analysis, and technical analysis. Topics include efficient markets, risk and return measurement, asset allocation, and debt versus equity securities. The investment process involves portfolio construction through asset allocation and security selection. Financial markets are analyzed in terms of their role in allocating capital, allowing consumption timing, allocating risk, and corporate governance issues. Players in the markets include firms, households, governments, and various facilitators.

Uploaded by

Subhan Imran
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Investment�&�Portfolio�

Management
Broad Course Outline
• Introduction
• Understanding nature of financial assets/ investment options
• Understanding basic mechanism of securities markets
• Efficient Capital Markets vs. behavioral finance
• Measurement of Risk and Return
• Portfolio theory & asset allocation
• Capital Asset Pricing Model (CAPM)
• Security analysis – Macroeconomic analysis, industry analysis, stock
valuation
• Technical Analysis
Text Books
• Investments by Bodie, Kane, & Marcus
• Investments: Analysis and Management by Charles P. Jones
• Investment Analysis & Portfolio Management by Reilly & Brown
Introduction
• Investment: Current commitment of money or other resources in the expectation of reaping
future benefits.
• Stocks, Bonds, Real Estate, Derivatives
• Portfolio: Collection of investment to achieve investment objectives.
• Return, Risk, & Liquidity
• Real Assets: Produce goods & services in an economy.
• Land, Building, Plant & Machinery, Knowledge
• Financial Assets: Represent claim on real assets (income generated by real assets), do not have
any productive capacity
• Stocks, Bonds etc.
Investors buy financial assets  Companies use this money to invest in real assets  Real assets
define productive capacity of an economy – financial assets represent allocation of income/wealth
among investors

*This course focuses more on financial assets.


Financial Assets
1. Fixed Income/ Debt securities: Promise either a fixed stream of income or a
stream of income determined by a specified formula.
1. Money Market – Short term – liquid – low risk securities
2. Capital Market – Long term – varying risk securities
2. Equity: Represents an ownership stake in the firm.
3. Derivatives: Payoffs/ value is determined on the bases of prices of other
securities/ assets – used for hedging risk
1. Forwards
2. Futures
3. Options
4. Swaps

Payoffs/ success of financial assets depends on productive capacity of real assets.


Required rate of return

Required return = Risk Free Rate + Risk Premium


Rit= Rf +RP
Where
Rf = Real Risk Free Rate + Inflation Premium

Capital Asset Pricing Model – CAPM


Rit= Rf + ᵯ (Rm – Rf)
Financial Markets and Economy
• Informational role of Financial Markets
• Help to allocate capital to most efficient use
• Consumption timing
• Time consumption according to saving & consumption needs
• Allocation of risk
• Providing various alternatives in accordance with risk tolerance of investors
• Separation of ownership and management
• Stable form of business firm – Owners may change, management remains the same
• Potential agency problems – overinvestment and wasteful behavior
• Aligned compensation
• Board of directors
• Institutional investors
• Takeovers
• Corporate governance and corporate ethics
• Agency issues – Frauds in financial disclosure
• Analysts reports – quid pro quo
• Role of Auditors
Investment process
• Portfolio construction
• Asset allocation – which asset to choose from: Bonds, stocks, real estate
• Security selection – Choosing between different securities of same asset class
• Approaches
• Top-Down approach – Starting with asset allocation
• Bottom-Up approach – Starting with security selection
Financial Markets
• Markets are competitive
• Risk-Return trade off – More risk  More return
• Markets are efficient – All relevant information is quickly and
efficiently reflected in stock prices
• Weak form efficiency – Past volume & Prices
• Semi-Strong form efficiency – All publically available information
• Strong form efficiency – All public & private information
Active vs. Passive Investment
*Markets are efficient because so many people think that they are not.
Players in Markets
• Firms – Demand capital
• Public/ Household – Suppliers of capital
• Governments – demand or supply – mostly demand funds
Facilitators
• Financial intermediaries – banks, insurance companies, investment
companies – issue their own security to supplier of funds
• Investment bankers - Help or manage security issuance in primary markets
• IPO (Initial Public Offering)
• SEO (Seasoned Equity Offering)
• Venture capital and private equity
Assignment
Read and provide description of:
• Dot Com bubble of 2001 – one page max
• Financial crisis of 2008 – one page max

Submit your work to your CR by next Thrusday, April 15, 2020.


CR will make a zip file and email me on the same date. No late
submissions will be entertained.

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