Content

The focus of this course is on the theoretical foundations of equity and fixed income portfolio management, its empirical evidence and professional applications. The topics covered in this course can be broadly categorized into five groups:

• Portfolio theory: The course first provides the tools to evaluate rates of return and risk of equity and bond investments. Next, we lay out modern portfolio theory which aims to accomplish efficient diversification across broad asset classes, and across individual securities within these asset classes. Finally we introduce more advanced techniques of active portfolio management. 
• Efficient market theory, and behavioral finance: We start with the efficient market hypothesis and demonstrate its implications. Being a useful framework to model financial markets, a review of the literature demonstrates that various stock market anomalies do exist.  Hence, there are reasons to believe that active investment strategies can be effective. Finally, we elaborate on behavioral finance, which is concerned with lessons from psychology to explain the irrational investor behavior that leads to observed anomalies in financial markets.
• Fixed-Income and Credit Sensitive Instruments: We review pricing and the management of risks involved in debt securities. This includes basic default-free debt instruments, defaultable bonds (and thus credit risk) and credit derivatives. Moreover, we also study the term structure of interest rates, and analyze interest rate sensitivity of bonds. Finally, we introduce various fixed income portfolio management techniques. 
• Portfolio performance evaluation: We introduce the tools to evaluate investment performance. To this end, we start with the measurement of portfolio returns and risk, and introduce different evaluation measures and methods. We explain the challenges that come with investment performance measurement and finally introduce the concept of performance attribution.

Course material

• Bodie, Z.,  A. Kane and A.J. Marcus (2014). Investments. 10th ed. (global edition). McGraw Hill Higher Education
• Toledo is being used for this learning activity.

Format: more information

Students are expected to follow the lectures and practice their knowledge and understanding of the material discussed via exercises. On Toledo, a discussion forum is opened where students can discuss the solutions to these exercises and the lecture material. This discussion is monitored by the lecturer. All modalities about the lectures are communicated via Toledo.

Throughout the course Excel is used to implement the concepts reviewed in the lectures. An assignment (part of the formal evaluation) further trains students on their skills to implement a portfolio optimization. The modalities of the assignment and deadlines are communicated via Toledo.