This class exists in these courses :
• IÉSEG > IESEG Degree - Programme Grande École > Semester 1 > 2,00 ECTS

Prerequisites

• Finance Fundamentals,
• Introduction to Financial Markets
• Basic notions in Statistics and Mathematics (optimization)
• Introduction to Bloomberg or to Reuters

Learning outcomes

At the end of the course the student should be able to :

… apply theoretical and analytical concepts of utility theory and the mean-variance framework of Markowitz to portfolio management and wealth planning. So the student should be able to collect accurate data for portfolio selection and build a portfolio of plain financial assets under in a mean-variance performance perspective. The student should be able to assess existing investment opportunities and to form expectations about future investments' performance.

This meets the following goal: at the end of the course, students should be "competent in their field". The learning objective of the course is therefore to "master the appropriate techniques and display expertise in their field".

The completion of the project also ensures that the following goals and learning objectives are met:
- to "work with rigor, precision and are well organized in a professional environment"
- to "have strong management skills", with the following learning objective: to "work efficiently in a team and provide contributions"
- to be "effective communicators", with the following learning objective: to "produce professional quality documents"

Course description

It builds on the modern portfolio theory as developed by Markowitz and focuses on basic principles of the portfolio management process that remain important today.

One of the main themes is the risk-return trade-off. Higher expected returns generally come along with the need to bear greater investment risk. But how can we measure risk? What should be the (equilibrium) quantitative trade-off between risk and expected return? Specifically, we devote attention to the effect of diversification on portfolio risk, as well as the implications of efficient diversification for the proper measurement of risk and the risk-return relationship.

The course also places great emphasis on capital allocation between risky assets and and risk-free assets and asset allocation (between risky assets). Asset allocation is the primary determinant of the risk-return profile of the investment portfolio. Finally, we discuss ex-ante and ex-post measures of portfolio performance, in order to develop a framework for ranking portfolios.

Class type

Class structure

Teaching methods

• Project work
• Tutorial

Assessment

What's mainly assessed is the acquisition of the knowledge transmitted during the course, which is quite theoretical. The students have to complete a project that accounts for 40% of the total grade during the two weeks that follow the course. It should help them proess the course content, acquire a pretty good understanding of it, and apply theory. After the project is over, the final exam will take place (so at least 2 weeks after the end of the course, and at latest 3 weeks after the end of the course). The final exam accounts for 60%.

Recommended reading

• BODIE, Z., KANE, A., and MARCUS, A., 2014. INVESTMENTS, McGraw-Hill Education, 10th Global Edition (Chapters 5-6-7-8-9) -

• Elton, E., Gruber, M., Brown, S. and Goetzmann, W. Modern Portfolio Theory and Investment Analysis. Wiley 8th Edition 2011 -

Internet resources

• IESEG Online