Portfolio Theory and Financial Markets

Learning Outcomes

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.

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.

• 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.

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.

Resources & Reading list

Textbooks

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

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

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

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

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

Formative

Formative assessment description

Summative

Summative assessment description

Referral

Referral assessment description

Repeat

Repeat assessment description

Repeat Information

Repeat type: Internal & External