Portfolio Management

a) General course information

This course deals with different asset pricing models including portfolio section, the Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT). The lecture focuses on the theoretical foundations of asset pricing models and a thorough understanding of the underlying assumptions of these models. The accompanying tutorials focus on the practical application of asset pricing models. A deeper understanding of portfolio management is fueled by student investment proposal presentations. For 20 years, a real portfolio was managed by students of our department. You have to prepare an investment or selling proposition which comprises topics of practical and/or theoretical importance to portfolio management.

b) Course structure:

1. Introduction: Basics of Risk and Return
2. Optimal Capital Allocation
3. Optimal Risky Portfolio
4. Index Models
5. Capital Asset Pricing and Multifactor Models

c) Requirements:

1. Intermediate knowledge in statistics: How to compute expected values and the covariance/variance between two variables
2. Good mathematical skills: Solve maximization and minimization problems, taking derivatives, familiarity with sums
3. Basis knowledge in econometrics: How to interpret regression coefficients (beta) and know the assumptions behind regression analysis
4. Some basic knowledge in STATA is beneficial, but not required
5. Willingness to learn and enthusiasm about finance

d) Grading 

The grade comprises 3 components 

1. 50% Exam (60 minutes)
2. 30% Investment proposal for the portfolio of the chair: You are expected to hold a 5-8 minutes’ presentation of your investment proposal
3. 20% STATA coding exercise (group work of 3-4 people)

The course is based on “Boodie, Kane & Marcus: Investments, 10th Edition”