Portfolio Theory and Financial Markets

Learning Outcomes

Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

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

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.

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.

• 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.
• Ethics for finance professionals.

Teaching and learning methods

• Weekly lectures will provide an overview of the main issues arising in the module.
• Weekly tutorials will supplement the lectures and 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.

Resources & Reading list

Textbooks

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

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

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

Blake, D. (2000). Financial Market Analysis. Wiley.

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

Formative

This is how we’ll give you feedback as you are learning. It is not a formal test or exam.

Summative

This is how we’ll formally assess what you have learned in this module.

Referral

This is how we’ll assess you if you don’t meet the criteria to pass this module.

Repeat

An internal repeat is where you take all of your modules again, including any you passed. An external repeat is where you only re-take the modules you failed.

Repeat Information

Repeat type: Internal & External