Close
SAPM-X06
(PGDM-PT 2006-09 : Term-VII)

Security Analysis & Portfolio Management
Facilitator: Prof. Shridhar Dash
Email: shridhar@ximb.ac.in
Credit: 3
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)
·
Evaluation
The following table is self-explanatory.

Components
Weights (%)
Surprise Quizzes (about 3 surprise quizzes)
30%
Industry Analysis – Equity Research Report (group assignment where group size is equal to 6 and not less than 5)
30%
End Term
40%

The industry analysis report should use the concepts that would be discussed during the portfolio theory and security analysis sessions. I would expect use of data, and original writing of the findings and conclusions. Students should submit their team names by June 20th and the report should be submitted on or before the end of the day of the last session of the course.
Content

The course has the following modules.

Module 1: Portfolio Theory – 9 Classes
Module 2: Security Analysis – 7 Classes
Module 3: Market Efficiency and Behavioral Finance – 4 Classes

Module 1: Portfolio Theory

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: Portfolio Risk-Return Measurement – Usefulness of Diversification
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.

Reading Material:
· Chapters 4 of EG

Session 3: Risk vis-à-vis Returns, Asset Allocation between Risky and Risk-free assets and Markowitz Model
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 7 of BKMM

Session 4 & 5: 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 6&7: 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 8: 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 9: 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

Module 2: Security Analysis

Session 10 & 11: 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 12 & 13: 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

Day 14, 15, & 16: Financial Intelligent: Interpreting the Publicly Available Information to Make an Intelligent Investment Decision
In these three 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 reading material would be provided

Module 3: Market Efficiency and Behavioral Finance

Session 17: Market Efficiency: Both Informational and Operational Efficiency
In this session, we will study some of the empirical results on market efficiency and how the efficiency results affects the over all investment decision making process

Reading Material:
· Chapters 12, and 13 of BKMM

Session 18, & 19: Understanding Arbitrage
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.

Reading Material:
· Class notes

Session 20: Behavior of Stock Prices and discussion on Behavioral Finance
In this session, we will discuss about some of the research results that show that investors do not behave rationally while taking major financial decisions. We will discuss about these results and we will also study about their implications.

Reading Material:
· Class notes
Created By: Bijoy Kar on 06/16/2008 at 03:10 PM
Category: ExPGP-III Doctype: Document

...........................