The University of Southampton
Courses

MANG2004 Portfolio Theory and Financial Markets

Module Overview

The module aims to develop understanding of the role of financial markets, security analysis and valuation, efficient market theory, asset pricing theory and portfolio management. This is an excellent module to understand the basics of finance, how financial markets work, pricing important financial assets and understanding the models in which finance is based upon.

Aims and Objectives

Module Aims

The module aims to develop understanding of the role of financial markets, security analysis and valuation, efficient market theory, asset pricing theory and portfolio management.

Learning Outcomes

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

  • key concepts in Finance, including the operation and structure of financial markets and trading systems, the analysis and valuation of different types of securities, and the optimal management of portfolios.
Transferable and Generic Skills

Having successfully completed this module you will be able to:

  • demonstrate competence generally in numerical analysis and problem solving; and in written communication.
Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

  • demonstrate an understanding of the theoretical concepts of efficient markets and asset pricing models;
  • demonstrate competence in the analysis of, and quantitative calculations relating to, investments and portfolios, with particular emphasis on mean-variance analysis.

Syllabus

• Introduction to financial markets: the financial system; participants; market and trading structure; regulation. • The market determination of discount rates and some financial arithmetic. • Money market securities and bonds: fair pricing; yield measures and theories of the yield curve. • Equity markets: fair pricing of shares; dividend policy and earning analysis. • Foreign currency: spot/forward transactions; exchange rate risk; purchasing power parity and covered/uncovered interest rate parity. • Risk and return: the rate of return under certainty and uncertainty; mean-variance analysis • Portfolio analysis: gains from diversification; efficient portfolios; the two-fund separation principal. • The Capital Asset Pricing Model / Capital Market Theory: the capital market line and the ‘market portfolio’; systematic and unsystematic risk. • Arbitrage Pricing Theory / Issues in asset pricing: the concept of arbitrage pricing. • The Efficient Market Hypothesis: Security analysis and the EMH; pricing anomalies. • Portfolio management: Fund management; ‘active’ versus ‘passive’ management. • Portfolio performance measures

Learning and Teaching

Teaching and learning methods

• Weekly lectures will provide an overview of the main issues arising in the module • Weekly classes will supplement the lectures which will support student learning by providing opportunities for students to attempt, and gain feedback on, numerical and problem-solving exercises. Students will also have the opportunity for both directed and non-directed independent reading.

TypeHours
Lecture24
Follow-up work24
Tutorial10
Wider reading or practice30
Preparation for scheduled sessions12
Revision50
Total study time150

Resources & Reading list

Brealey, R.A., Myers, S.C., Allen, F (2008). Principles of Corporate Finance. 

Blake, D (2000). Financial Market Analysis. 

Bodie, Z., Kane, A., Marcus, A.J. (2009). Investments. 

Cuthbertson, K., and Nitzsche, D (2001). Investments – Spot and Derivatives Markets. 

Cuthbertson, K., Nitzche, D (2008). Investments. 

Assessment

Summative

MethodPercentage contribution
Examination  (2 hours) 70%
Multiple choice Test  (45 minutes) 30%

Repeat

MethodPercentage contribution
Examination  (2 hours) 100%

Referral

MethodPercentage contribution
Examination  (2 hours) 100%

Linked modules

Prerequisites: MANG1007 or MANG1019 or ECON1001 or ECON1003 or ECON1009

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