Dr. P.V. Viswanath
|Courses / Chico /|
FINA 657: SEMINAR IN INVESTMENT ANALYSIS Spring 2011
This course will emphasize an understanding of the economic forces that influence the pricing of financial assets. This is viewed as a necessary prelude to the application of financial theory. Accordingly, understanding of the theory will be stressed and accompanied by the discussion of normative techniques such as portfolio selection, interest rate immunization and hedging.
Although the course material will cover formulas that can be applied in different business situations, a primary objective of this course will be, on the one hand, to learn the concepts behind the formulas. This second aspect is very important for a good reason: simple memorization of formulas is meaningless and is no use to most people; the reason is that in this age of computers, simple computation of formulas is increasingly automated. Rather, the added value that a human being brings to a work situation is the ability to impose structure on a unstructured situation and then to analyze the situation
When you have completed this course successfully, you will be familiar with:
The next section of the course introduces the universal characteristics of all investments, i.e. risk and return (Chap. 5). We first learn how to allocate money to risky and riskfree investments (Chap. 6). Then, we learn how to put risky investments together in a portfolio (Chap. 7). By considering the equilibrium implications of different investors using these portfolio selection rules, we come to an understanding of the principles by which the market prices financial assets. We will look at the simplest model, the CAPM (Chap. 9). Next we will look at more complex models of asset pricing, that are better descriptors of asset prices from an empirical point of view. We must realize, however, that the only way to interpret data is to start with a baseline principle. This principle, which assumes that investors act rationally, is called the Efficient Markets Hypothesis and has been the backbone of academic finance and the data are, by and large, consistent with it (Chap. 12). However, more and more, economists are beginning to understand that investors are not always rational. (Chapters 12 and 13).
Upto this point, we have ignored the time element in asset pricing. We now look at assets whose main purpose is to facilitate the transfer of wealth over time, viz. bonds (Chap. 14). The pricing of bonds determines market interest rates, which are nothing but the price that the market pays investors for deferring consumption. Interest rate risk measures are explored, as well as means of hedging against such risk (Chap. 15). Bonds are very different from stocks in two ways -- one, they have finite maturity; and two, they are less liquid. For this reason, techniques for constructing and managing bond portfolios are quite different (Chap. 16).
The final section considers the evaluation of portfolios (Chaps. 24).
Please check the Blackboard website on a regular basis. I will be primarily using Blackboard to communicate with you.
I also require that you read the Wall Street Journal and/or the business section of the New York Times on a regular basis. Some exam questions will be based on current newspaper and magazine articles that are related to course material. Hence you should cultivate and improve your ability to read newspaper articles critically. If you do not already subscribe to the Wall Street Journal, you can do so online from the FINA 657 website.
Assignments are a critical part of the course. The main purpose of these assignments is to make sure that you understand the material, and to prepare you for the exams. The deadlines are indicated on the Course TimeTable; if the deadline passes, you will lose points so you are advised to do them on time. Assignments can be found on the website on the Assignments Page.
You should form groups consisting of 4 students as soon as possible and definitely not past the end of the first week -- deadlines will start piling up, and you will lose valuable points. If your group consists less than 4 students, I may assign you enough students to bring up your number to 4. You should also designate a group co-ordinator. The group co-ordinator is not necessarily the group leader, unless you choose him/her to be a group leader. The position is simply for convenience so that I only deal with one person per group. Most assignments, unless specifically indicated otherwise, will be group assignments and must be submitted by the group co-ordinator on behalf of the group.
The Discussion Group is a crucial part of the course. You will be given articles to read and react to. At the bottom of the article, you will generally find some comments/questions at the bottom of the article; however, you shoudl not treat these questions as requiring "answers" necessarily. Rather treat them as my thoughts and simply comment on the issues raised by the article or by the information contained in the article. Even if you are reacting to my thoughts, the structure of your posting should not in the form of an "answer" to my questions. I will deduct points if you ignore this requirement! Postings to the discussion group will be by teams (i.e. not individual postings), and must be done according to the schedule indicated on the calendar.
Postings will be evaluated according to the following criteria:
It is expected that any work that you turn in, either directly to me or that you might post is your own work. It cannot be plagiarised. In other words, you can submit somebody else's work or language or work as your own. If you quote from somebody else's work, the quoted part has to be clearly identified either by putting it between inverted commas or by putting it in a separate indented paragraph.
There will be a midterm exam and a final. Exams are closed book (unless otherwise announced), but I will allow you to bring in one 8.5" x 11" sheet of paper containing formulas only (two sides). You should not have any worked-out examples on the worksheet.
On my webpages, you will find recent media articles. From time to time, I will add to this list. There are several reasons why you should look regularly at these pages.
The password, necessary to access the Media Articles section will be posted on Blackboard. In case of emergency, you can contact me for the password.
Note that the minimum and maximum quantitative scores for plus and minus refinements to the letter grades will be at my discretion. These will be partly determined by the distribution of student scores within each letter grade category. I place a high value on effort; at my discretion, I will raise your grade one notch if I feel that you have tried hard to satisfy all the requirements of the course. Finally, I may change the weight of the different factors on your grade, as I may deem necessary.
I expect all students enrolled in FINA 657 to have the following prerequisites:
Please send me the following information as soon as possible: