FINE3200 Fall 07

1 FINE3200.03 INVESTMENTS Schulich School of Business York University Fall 2007 Professor: Dr. P. Shum Classroom: Sect.A: E111/Sect.B: W257 Phone: York ext.66430 E-mail: pshum@schulich.yorku.ca Website: http://www.yorku.ca/pshum Office: N222 Secretary: Lucy Sirianni, N204A Office hour: MW 11:30am to noon, or LSirianni@schulich.yorku.ca by appointment Course description This is an introductory course to investments. It begins with an overview of the structure of financial markets in Canada and in the United States, followed by a more in-depth analysis of some key investment topics. These topics include portfolio theory, evaluation of portfolio performance, the capital asset pricing model, term structure of interest rates, valuation of stocks and bonds, portfolio management, capital market efficiency, and behavioural finance. This course serves as a useful introduction to the Chartered Financial Analyst (CFA) curriculum.1 Required textbook (B) Bodie, Kane, Markus, Perrakis and Ryan, Investments, 5th Canadian edition, McGraw-Hill Ryerson, 2005. (Additional materials will be posted on the course website, handed out in class, or put on reserve in the library.) References: (H) Hooke, Jeffrey C., Security Analysis on Wall Street, Wiley Frontiers in Finance, 1998. (F) Fabozzi, Frank J. and T. Dessa Fabozzi, The Handbook of Fixed Income Securities, 4th edition, Irwin, 1995, or similar books by Frank Fabozzi from the CFA curriculum. (S) Shleifer, Andrei, Inefficient Markets: an Introduction to Behavioural Finance, Oxford University Press, 2000. Grade distribution Midterm test (35%) Stock-Trak group report (20%) Final examination (45%) Stock-Trak Stock-Trak is a stock market simulation game that gives students the opportunity to gain handsoo experience in trading and portfolio management. See http://www.stocktrak.com/for more information. The game starts on Monday, September 17, 2007, and ends on Friday, November 1 For information on the CFA programme, see http://www.cfainstitute.org/cfaprog/. 2 23, 2007 (10 weeks). Students should make sure that they are in a group (four students per group) Wednesday, September 12, 2007. Each group should elect a leader, and sign up on my website. Once you have done so, I will send a Stocktrak account number and instructions for registration to your group leader. Please note that you are NOT allowed to trade options and futures, or day trade in this course. In the group report, you are expected to: 1. Provide a detailed description of your investment strategy, based upon the goal of maximizing your portfolio value at the end of the game. 2. Explain how you executed your investment strategy. In your discussion, provide a few examples for each aspect of your strategy. 3. Evaluate your track record using standard portfolio performance measures. End with a paragraph of after-thoughts and lessons learned. The above three items and your group’s ranking in the class (based on the performance of your portfolio at the end of the game) carry equal weight. The length of your report must not exceed 12 pages, and must be double-spaced, including all graphs, tables and references. Marks will be deducted (three marks per additional page out of a twenty-mark total) if this page limit is not adhered to. Your group report is due on the last day of class, Monday, December 3, 2007. Please note that late reports will not be accepted. General information Please note that laptops are allowed in class only for the purpose of notes-taking. I rely heavily on the course website for communication with the class. Please check it on a regular basis. Students are expected to know basic statistical concepts, such as mean, variance, covariance, and correlation coefficient. Students should make sure that they have a clear understanding of these concepts prior to the start of the term. Students may wish to refer to “Appendix A: Quantitative Review” on the text website (check under “Student Edition”): http://www.mcgrawhill.ca/college/bodie. There is NO make-up test for the midterm. Anyone who misses the midterm test must provide written explanation with supporting document(s), and write a “comprehensive” (to be explained in the first class) final examination that is worth 80% of the grade. The Schulich School of business does not accept faxed or e-mailed assignments and term papers. 3 The Schulich School of Business does not use a percentage scale. A cumulative percentage mark of 50% does not necessarily mean that a student will pass a course. Tentative lecture schedule Below are the dates and the corresponding readings. End-of-chapter appendices in the textbook can be excluded, unless otherwise stated. Additional material will be distributed in class, or posted on the course website. Students must do the readings before every class. I. Introduction to Portfolio Management and Financial Markets Useful websites: American Stock Exchange (http://www.amex.com) Toronto Stock Exchange (http://www.tse.com) Securities Exchange Commission (http://www.sec.gov) Ontario Securities Commission (http://www.osc.gov.on.ca) September 5 B: chapters 1 & 2 September 10 H: chapters 5, 6, 7 September 17 B: chapter 3 September 19 B: chapter 4, including appendix on pension plans II. Asset Allocation Useful websites: http://www.tdcanadatrust.com/mutualfunds/pdf/mut_app.pdf http://bmo.com/mutualfunds/ps/matchmaker_test.html http://www.waterhouse.com/planning/investment_basics/time_vs_risk.html September 24 B: chapter 5 September 26 (Cont’d) October 1 B: chapter 6 Rubinstein, Mark, 2002, “Markowitz’s Portfolio Selection: A Fifty-Year Retrospective”, Journal of Finance, vol.57, no.3, pp.1041-1045. Lettau, M., J.Y. Campbell, B.G. Malkiel, Y.Xu, 2001, “Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk”, Journal of Finance, vol.56, no.1, pp.1-43. October 3 (Cont’d) III. The Capital Asset Pricing Model October 10 B: chapter 7.1 October 15 (Cont’d) October 17 B: chapter 8.1-8.3 October 22 Midterm test IV. Portfolio Performance Measures 4 October 24 B: chapter 20 V. Stock valuation and portfolio management Useful website: http://www.yardeni.com (free registration for university students) October 29 B: chapter 14, H: chapters 12, 13 October 31 (Cont’d) November 5 TBA VI. Fixed income valuation and portfolio management November 7 B: chapter 11, F: chapter 2 November 12 (Cont’d) November 14 B: chapter 12, F: chapter 6 November 19 (Cont’d) November 21 B: chapter 13, F: chapter 5 November 26 (Cont’d) VII. Market efficiency and behavioural finance November 28 B: chapter 9 December 3 S: chapter 1