Faculty of Business: Finance and Economics
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Handbook description

This subject introduces students to the theory and practice of modern portfolio theory, surveys relevant aspects of capital markets, foundations of investment decision making, portfolio selection via the mean-variance approach, and theory and empirical tests of equilibrium pricing models.

Subject objectives/outcomes

On successful completion of this subject students should be able to:

1. Understand the theory and principles underlying modern portfolio theory
2. Apply portfolio theory to investment decision problems
3. Have an appreciation of empirical issues surrounding the testing of capital market equilibrium pricing models.

Contribution to graduate profile

Provides students with an understanding of the fundamentals of the risk-return trade-off and concepts of portfolio theory and analysis that permeate the entire course.

Teaching and learning strategies

The subject will incorporate a range of strategies including lectures, assignment problems, and the use of a simulation package to illustrate certain key concepts.

Content

• The capital markets
• Measuring rates of return
• Investment decisions under certainty
• Investment decisions under uncertainty
• Stochastic dominance rules
• The mean-variance criterion and portfolio selection
• The capital asset pricing model
• The risk index beta
• Other risk return models
• Testing the equilibrium models
• Performance measures
• Market efficiency.

Assessment

Assignment/Problems (Individual)	20%
Individual assignment will be used to assess the ability of course participants to arrive at a sound understanding of financial markets using relevant financial techniques. These assignments will enable students to demonstrate that they have met objectives 2 and 3.
Mid-Semester Examination (Individual)	30%
Mid-semester examination will test students' knowledge and competencies in applying financial techniques to solve problems. It assures objectives 1-4.
Final Examination (Individual	50%
The final examination will test students' knowledge and competencies in applying financial techniques to solve problems. It assures objectives 1-4.

Examinations will be conducted under University examination conditions, and hence thoroughly address concerns regarding secure assessment. The assignment will be secured through a combination of updating of assessment tasks across semesters and/or plagiarism detection software.

Recommended text(s)

Luenberger, D. (1998) Investment Science, Oxford University Press.

Indicative references

Levy, H. and Sarnat M. (1984) Portfolio and Investment Selection: Theory and Practice, Prentice Hall.