25834 Portfolio Analysis

Subject level: Postgraduate

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

Assessment item 1: Assignment/Problems (Individual)

Assessment item 2: Mid-Semester Examination (Individual)

Assessment item 3: Final Examination (Individual)

Recommended text(s)

Elton, EJ, Gruber, MJ, Brown, SJ and Goetzmann W, Modern Portfolio Theory and Investment Analysis, 7th edn, 2007. John Wiley & Sons

Bodie, ZA, Kane and AJ Marcus, Investments, 6th edn, 2005, McGraw-Hill.

Indicative references

Luenberger, D. G., Investment Science, 1997, Oxford University Press. (Good mathematical treatment of several topics).

Brailsford, T, Heaney, R & Bilson, C 2006, Investments: concepts and applications, 3rd Edition, Thomson, South Melbourne, Victoria. (Particularly good on issues specific to Australian markets and on institutional information)

Sharpe, W. F., Alexander, G. J. and Bailey, J. V., Investments, (2005), 6th Edition, Prentice Hall

Kritzman, M., The Portable Financial Analyst - What Practitioners Need to Know, 1995. Probus Publishing, Chicago, Ill.

Campbell, J. Y.; Lo, A and McKinlay, A. C, The Econometrics of Financial Markets, 1997. Princeton University Press

Greene, W., Econometric Analysis, 2000, 4th Edition, Prentice-Hall

Beninga, S., Financial Modelling, 2nd edition, 2000. The MIT Press.

Newspapers and periodicals

Staying abreast of current events makes this course more interesting. It will also help you in successfully managing your funds in the portfolio project. Therefore you are strongly encouraged to read financial newspapers such as The Financial Review or periodicals such as Shares, BRW, Fortune and The Economist. These provide updates of economic conditions, information on specific companies and the investment outlook.

Electronic resources

Course website http://online.uts.edu.au

All information associated with the course will be posted on the course website. This will include Powerpoint slides, additional lecture notes, assignments, data, software. Please check the website regularly for any announcements.

Historical stock price data is freely available from: http://au.finance.yahoo.com

For company information, see company websites.

You may find the ASX website useful: www.asx.com.au

Check the course website for additional useful links/electronic resources.