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SAPM-P08
(PGDM 2008-10 : Term-IV)

Security Analysis and Portfolio Management
(Faculty: Prof. Sridhar K. Dash)

COURSE OUTLINE

Introduction
A successful investor is one who sees the future before anybody else sees. The subject would help in structured thinking about how surplus capital is invested to generate adequate return by investing in asset markets.

The course would provide understanding of theoretical concepts in the field of investment management and how these theories applied in real life. Students would learn how to use the concepts they have already learned in Accounting, Financial Management, and Macroeconomics courses in investment management. For the purpose of investment management, financial assets can be grouped into major asset classes: Equities, Fixed Income Securities, and Derivatives, Alternative Investments (Real Estate, Venture Capital, Private Equities, and International Investments etc.). In this course we will focus mostly on Equities.

We will cover the following topics in the course: asset allocation, portfolio optimization, asset pricing, portfolio management, market efficiency and behavioral finance, portfolio performance measurement, valuation of stocks, and equity research.

Recommended Text
· Investments, Special Indian Edition, 6th Edition, by Bodie, Kane, Marcus and Mohanty, Tata McGraw Hill, 2006. (BKMM hereafter).
· Modern Portfolio Theory and Investment Analysis, by Elton and Gruber (EG hereafter)

Reference Book
· Financial Intelligence, Harvard Business School Press, by Karen Berman and Joe Knight
· The Intelligent Investor, Revised Edition, Collins Business Essentials, by Benjamin Graham
· Understanding Arbitrage: A Intuitive Approach to Financial Analysis, Wharton School Publishing, by Randall S. Billingsley

Evaluation
This course would be quantitative in nature and develop on the concepts that are being taught in FM and other finance courses. Therefore I would suggest that the students who are good in QM and FM should take the course.

The following table is self-explanatory.

Components
Weights (%)
Class Participation
15%
Surprise Quizzes (about 3 surprise quizzes)
30%
Company Analysis – Equity Research Report (group assignment where group will consists of 2 students)
25%
End Term
30%

The company analysis should use the concepts that are discussed during the security analysis module of the course. I would expect use of data, and original writing of the findings and conclusions. Students should submit their team names along with company they would analyze by July 1st, and the report should be submitted on or before August 22nd. Under no circumstances the last date will be extended. Those who will not submit the report would get zero on the component.

Content

The course has the following modules.

Module 1: Security Analysis – 9 Classes
Module 2: Portfolio Theory – 8 Classes
Module 3: Investment Strategy – 3 Classes

Module 1: Security Analysis
Session 1: Economic Theory of Choice under Certainty & Uncertainty
In this session we will study how an investor makes choice when he faced with certainty and how does that change when we introduce uncertainty of the outcome.

Reading Material:
· Chapters 1 of EG

Session 2&3: Macroeconomics and Industry Analysis for Investment Decisions
In these two sessions, we will study some of learning from macro economics that can be used while making investment decisions. We will study the effects of fiscal, monetary policies on over all investment scenarios. In addition to macro economics factor we would discuss the industry structure and its implications for the company’s future prospects. Besides we would discuss the implication of business cycle on investment decisions.

Reading Material:
· Chapters 17 of BKMM

Days 4&5: Basic Principles of Stock Valuation
In these two sessions, we will study some of the stock valuation model. Some of the model we would discuss in details are, Dividend Discount Model, P/E multiple model, and Free Cash Flow Models.

Reading Material:
· Chapters 18 of BKMM

Session 6&7: Financial Intelligent: Interpreting the Publicly Available Information to Make an Intelligent Investment Decision
In these two sessions, we will how investor and fund manager should look at the financial statement in a microscope to understand what numbers are speaking, and how the numbers can be leveraged to manage the money.

Reading Material:
· Chapters 19 of BKMM
· Some more reference would be provided

Session 8&9: Class exercise and presentation
The class will be divided into 4 groups (16 members each) and each group will be given a company to study in detail. Each individual should do their own analysis; it would be nice if the group members share their thoughts to enrich each others understanding. One student (randomly chosen by my self) will be asked to share the analysis with the class, where as other group members can participate in the discussion. Name of the companies would be given in the first class.

Module 2: Portfolio Theory
Session 10: Portfolio Risk-Return Measurement, Asset Allocation between Risky and Risk-free assets and Markowitz Model
In this session we will study how measurement of risk and return of an individual asset is different from risk and return of a portfolio. Once we would introduce these measurement matrices, we would prove how diversification helps to reduce over all risk of the portfolio. In this session we will study the problem of asset allocation and how investor uses the risk-return matrices to make that choice. We would derive the Capital Allocation Line and discuss the separation principle which would be used in our latter sessions.

Reading Material:
· Chapters 4 of EG
· Chapters 7 of BKMM

Session 11 & 12: Choosing the Optimal Risky Portfolio & Index Model
In this session we would study how an investor chooses the risky portfolio. We would study the Markowitz portfolio theory and derive the efficient frontier which helps the investor to make an optimal choice. Once we derive the optimal portfolio we would study the index model to price the risk for the efficient portfolio.

Reading Material:
· Chapters 8 of BKMM
· Chapter 5 of EG

Session 13 & 14: Equilibrium Asset Pricing Model: CAPM and Enhancement to CAPM
In this session we would study one of the most popular asset pricing models and its enhancements. In these two sessions we would study the usefulness of the CAPM in details.

Reading Material:
· Chapters 9 of BKMM
· Chapter 13 of EG

Session 15: Other Asset Pricing Models
Though academicians and practitioners often use CAPM, there are alternative models to CAPM. These models include models like consumption-based CAPM, Conditional CAPM, APT, multi-factor models, single index models, etc. In these two sessions, we will study the basics of some of those alternative asset-pricing models.

Reading Material:
· Chapters 10 and 11 of BKMM

Session 16: Portfolio Performance Measurement
In this session, we will study the different tools that are used to assess the performance of the portfolios.

Reading Material:
· Chapter 24 of BKMM

Session 17: Understanding Arbitrage, Market Efficiency: Both Informational and Operational Efficiency

In this session we would understand the process of arbitrage and its implications on theory of one price and how arbitragers play a role in price discovery process. Besides role of he market efficient hypothesis on investment decision making process would be discussed.

Reading Material:
· Chapters 12, and 13 of BKMM
· Class discussion

Module 3: Investment Strategy
Day 18, 19 & 20: Learning from Industry Experts
In these 3 sessions we would learn from practitioners from two of the leading investment banks. These classes would be held during August and September month depending on the availability of the corporate executives.

Reading Material:
· Class notes
Created By: Debasis Mohanty on 03/27/2009 at 03:11 PM
Category: PGP-II Doctype: Document

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