Course overview
This course considers the principles of modern portfolio theory and its applications to the technical and practical aspects of portfolio design. The implications of the theory include an examination of the models for the relationship of risk and return as well as portfolio performance evaluation. The course also covers equity security analysis and fundamental valuation, the measurement and management of interest rate risk for bond portfolios, and the pricing and use of derivative securities. Introduction to investment management and analysis: quantitative techniques in investment management; mean-variance and portfolio optimisation.
Portfolio theory: modern portfolio theory (MPT); capital asset pricing model (CAPM); index models; arbitrage pricing theory (APT); empirical evidence and market efficiency.
Asset markets: bonds; equities; derivatives - security analysis, interest rate risk, valuation.
Investment strategies: portfolio construction and management strategies; the asset allocation process.
Portfolio management: active versus passive investment strategies; market timing; security and asset class selection; evaluating portfolio performance.
Course learning outcomes
- Explain the theoretical framework underlying modern portfolio theory (MPT), the capital asset pricing model (CAPM) and arbitrage pricing theory (APT)
- Explain the importance of investment theory as a basis for portfolio construction and portfolio and fund management
- Recognise the empirical validity of aspects of portfolio theory, the role of theory in portfolio and fund management and the practical limitations of these theories
- Identify the main characteristics of the bond, equity and derivative markets
- Examine the investment risks associated with each of the asset classes, both separately and as part of the overall portfolio
- Integrate the theoretical framework with an understanding of each of the markets to derive portfolios consistent with the investor's risk profile; describe the use of benchmarks in the fund management process and evaluate the performance of an investment portfolio in both absolute and risk-adjusted terms
- Demonstrate Business Enterprise Skills in the context of Finance: i) Self-Management (advanced level); ii) Problem Solving (advanced level); iii) Ethical Awareness (advanced level); iv) Teamwork (advanced level); and v) Written Communication (advanced level).