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Objectives
The objective of this course is twofold. First, to introduce students to the most commonly used quantitative tools and fundamental financial concepts: optimal portfolio selection, the relationship between risk and return, asset pricing models, market efficiency and behavioural finance. Second, to introduce students to important classes of financial assets and investment vehicles: fixed income and public equity. The course is intended to provide students with both a lasting conceptual framework and, through the incorporation of real-world data, a greater understanding of how real life situations play out. Finally, in an effort to link theory to practice, most exercises assigned at the end of each session come from past CFA (Chartered Financial Analyst) examinations.
Contents
We start with the pillar of Finance: The law of one price. We apply this concept to pricing fixed-income securities. As we do so we introduce the notions of yield to maturity and yield curve and learn how to construct a yield curve by the so-called Bootstrapping technique. Next, we discuss the different term structure theories, the spot-forward interest rate parity and cover the notion of duration and convexity for fixed-income securities. The next topic covered in the course is modern portfolio theory. Students learn how to find the optimal portfolio of assets for an investor. To do so we study how to compute an efficient frontier and discuss the difference between idiosyncratic risk and systematic risk. Next, we see how the most-widely used asset-pricing model - namely the CAPM - is derived, and how to use it in an investment context. We introduce an alternative model, the APT, and discuss where the CAPM and APT fail empirical tests on their validity. Also, we discuss the notion of Market Efficiency, in order to understand what would happen if markets were working smoothly. Finally, we examine how markets actually function and contrast it with the market efficiency theory. As the facts are different from the theory we isolate some reasons for this discrepancy and therefore get a deep insight into how financial markets work and why they can fail. As we do so, we cover the vivid debate in academia and among practitioners about the efficiency of the markets, understand better the recent financial crisis, introduce important notions and learn about a number of stylized facts (e.g. the book-to-market effect, under-reaction).
Registration at
Please go to https://www.sis.uva.nl.
Format
Three hours lectures per week, two hours tutorials per week. All the lectures are in English.
Time
Please go to http://rooster.uva.nl
Study materials
- Bodie, Z., Kane, A. and Marcus, A. Investments. McGraco-Hill, 9th edition (c. €60);
- other course material is available on Blackboard at https://blackboard.ic.uva.nl.
Assessment
The final grade consists of the final written examination (70%) and assignments during the course (30%). For information on the grading in case of a resit go to the Blackboard site of the course.
Examination date
Please go to http://www.rooster.uva.nl and http://www.student.uva.nl/feb-academicyear.
Remarks
This course is a part of the Bachelor's programmes Bachelor Bachelor Economie en Bedrijfskunde and Bachelor's in Economics and Business.
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