Adriano A. Rampini

Associate Professor of Finance
Ph.D. University of Chicago, 1998

Investment (Finance 352) - Spring 2010

Welcome to Finance 352 Investment course web page.

The recent turbulence in financial markets and the world economy means that investment and financial markets are on everyone's mind. This course provides the tools to analyze the risk in financial markets and manage investments. The tools are applied to understand, for example, the role and effects of hedge funds, the effect of liquidity on asset pricing, and the connection between financial markets and the macro economy, including the effect of rare large events (such as severe recessions and wars) and long run growth risk.

The course provides a rigorous treatment of the fundamental principles of investments, investment management, and asset pricing. A preliminary course outline is below and additional information and materials will be provided as the term approaches and throughout the term. The textbook for the course is Investments (8th edition) by Bodie, Kane, and Marcus (McGraw-Hill/Irwin, 2009, ISBN# 9780077261450). [Preassignment] [Syllabus] [Bulletin Board]

News & Announcements

[2/19/10] Welcome to the course web page. I will update the page as the term approaches and throughout the course. Looking forward to seeing you on Monday, March 22. - Adriano Rampini

Preliminary Schedule

Class 1: Introduction and Overview of Asset Management
Monday, 3/22.
Readings: [BKM] chapter 5.3-5.5, 5.8. [Preassignment 1] Siegel, Jeremy J., "The Equity Premium: Stock and Bond Returns Since 1802," Financial Analysts Journal 48 (1), 1992, 28-38. [Preassignment 2] Jorion, Philippe, and William N. Goetzmann, "Global Stock Markets in the Twentieth Century," Journal of Finance 54 (3), 1999, 953-980.
Additional Readings: [BKM] chapters 1-5 (skim).
Handouts: Syllabus, Notes 1, Problem Set 1.
Additional Materials: Spreadsheet for Problem Set 1, Flow of Funds Accounts of the United States (see in particular page 102, "Balance Sheet of Households and Nonprofit Organizations").

Class 2: Asset Allocation
Thursday, 3/25.
Readings: [BKM] chapters 6.1-6.6, 7.1-7.4, 8.1, & 8.2. [1] Jorion, Philippe, "Portfolio Optimization in Practice," Financial Analysts Journal 48 (1), 1992, 68-74.
Handouts: Notes 2, Notes on Computing the Returns and Risk of Portfolios with Many Assets, Notes on the Computation of the Minimum Variance Frontier.
Additional Materials: Spreadsheet Computing MVE Portfolio of 2 Assets using Solver, Spreadsheet Computing MVE Portfolio.

Class 3: Asset Pricing 1: Capital Asset Pricing Model (CAPM)
Monday, 3/29. Problem Set 1 Due.
Readings: [BKM] chapter 9.1-9.4.
Handouts: Notes 3, Problem Set 2, Data Access Instructions for Investment, Problem Set 1: Solutions.
Additional Materials: Spreadsheet with Problem Set 1: Solutions.

Review Session 1
Wednesday, 3/31. 10am to noon. RJR Classroom.

Class 4: Passive Portfolio Management, International Diversification, and Evidence on the CAPM
Thursday, 4/1.
Readings: [BKM] chapters 8.3, 25.1, 25.3, & 25.4.
Handouts: Notes 4.
Additional Materials: Spreadsheet with CAPM Regression, Spreadsheet with Global Asset Allocation, Information Sheet about the MSCI EAFE Index.

Class 5: Asset Pricing 2: Factor Models
Monday, 4/5. Problem Set 2 Due.
Readings: [BKM] chapters 10.1-10.6 & 13.1-13.4. [2] Asness, Clifford S., Tobias J. Moskowitz, and Lasse H. Pedersen, Value and momentum everywhere, Working paper, 2009, AQR, University of Chicago, and NYU.
Handouts: Notes 5, Problem Set 2: Solutions, Last Year's Midterm Exam, Last Year's Midterm Exam: Solutions.
Additional Materials: Spreadsheet with Problem Set 2: Solutions.

Review Session 2: Review for Midterm Exam
Wednesday, 4/7. 10am to noon. RJR Classroom.
Handouts: Recommended Practice Problems from Bodie/Kane/Marcus.
Additional Materials: Practice Midterm Exam, Practice Midterm Exam: Solutions.

Class 6: Active Portfolio Management
Thursday, 4/8.
Readings: [BKM] chapters 8.4, 8.5, 27.1, 27.3, & 27.4. [3] Black, Fischer, and Robert Litterman, Global portfolio optimization, Financial Analysts Journal 48 (5) 1992, 28-43.
Handouts: Notes 6.
Additional Materials: Black-Litterman Spreadsheet.

Class 7: Midterm Exam
Monday, 4/12.

Review Session 3
Wednesday, 4/14. 10am to noon. RJR Classroom.

Class 8: Measuring Fund Performance
Thursday, 4/15.
Readings: [BKM] chapters 11.5, 24.1, 24.3, & 24.5. [4] Sharpe, William F., Asset allocation: management style and performance measurement, Journal of Portfolio Management 18 (2) 1992, 7-19.
Handouts: Notes 8, Problem Set 3, Midterm Exam: Solutions.
Additional Materials: Spreadsheet for Problem Set 3, HML vs. Value Stocks Spreadsheet.

Class 9: Asset Pricing 3: Consumption Based Asset Pricing and the Equity Premium Puzzle
Monday, 4/19.
Readings: [BKM] chapters 13.6 & 17.1-17.5. [5] Siegel, Jeremy J., Perspectives on the equity risk premium, Financial Analysts Journal 61 (6) 2005, 61-73.
Handouts: Notes 9, Notes on Consumption Based Asset Pricing.

Review Session 4
Wednesday, 4/21. 10am to noon. RJR Classroom.

Class 10: Asset Management, the Macro Economy, and Predictability of Asset Returns
Thursday, 4/22. Problem Set 3 Due.
Readings: [BKM] chapters 13.5 & 24.4.
Handouts: Notes 10, Problem Set 4, Problem Set 3: Solutions.
Additional Materials: Predictability Spreadsheet, Barro (2006) on rare disasters.

Class 11: Alternative Investments: Hedge Funds and Private Equity
Monday, 4/26.
Readings: [BKM] chapters 24.2 & 26.1-26.6. [6] Asness, Clifford, Robert Krail, and John Liew, Do hedge funds hedge? Journal of Portfolio Management 28 (1) 2001, 6-19. [7] Lerner, Josh, Antoinette Schoar, and Jialan Wang, Secrets of the academy: the drivers of university endowment success, Journal of Economic Perspectives 22 (3) 2008, 207-222.
Handouts: Notes 11, Last Year's Final Exam, Last Year's Final Exam: Solutions.
Additional Materials: David Hsieh's Hedge Fund Research Page provides links to many of his papers on hedge funds, e.g., Hedge Funds: An Industry in Its Adolescence, and Hedge Funds: Performance, Risk and Capital Formation, Kent Daniel (GSAM): The Liquidity Crunch in Quant Equities: Analysis and Implications, Jurek (2009) on Crash-neutral Currency Carry Trades.

Review Session 5: Review for Final Exam
Wednesday, 4/28. 10am to noon. RJR Classroom.
Handouts: Recommended Practice Problems from Bodie/Kane/Marcus.
Additional Materials: Practice Final Exam, Practice Final Exam: Solutions.

Class 12: Review and Trends in Asset Management
Thursday, 4/29. Problem Set 4 Due.
Handouts: Notes 12, Problem Set 4: Solutions.
Additional Materials: Article on Why Older People Should Invest Less in Stocks Than Younger People.

Final Exam
During exam period, Monday-Wednesday, 5/3-5/5. Date TBA. Time TBA. Room TBA.