663. iFi (International Finance)

Campbell R. Harvey
Professor, Fuqua School of Business, Duke University, Durham, NC USA
Research Associate, National Bureau of Economic Research, Cambridge, MA USA
Investment Strategy Advisor, Man Group PLC, London, UK

Spring Term 3, 2014

Course Description

International Finance will share an investment finance and a corporate finance perspective. Student will learn key aspects of international corporate finance (evaluation of investments, hedging, dealing with political risk). Students will also learn about the issues facing portfolio investors in equities, bonds, and commodities. Students will learn how to evaluate potential corporate and portfolio investments as well as how to measure and manage risk exposures. Course should be taken by any student specializing in either Corporate Finance or Investment Finance.

As such there are two distinct tracks, International Investment Finance [IIF] and International Corporate Finance [ICF]. The deliverables in the course are bifurcated. However, both tracks are expected to attend all classes.

Class Topics

Here is a tentative list of topics. The schedule is somewhat fluid in that I may spend longer on some topics and spillover to the next class. I might add or delete topics. I will also be interested in your input for topics.

1. Thursday January 16 10:30ET

Course overview/A View of the Recent Financial Crisis and Implications Moving Forward [ICF+IIF]

The first part of the session sets the expectations for the course. I then launch into a discussion regarding the origins and impact of the recent financial crisis for both the practice of corporate finance and investment management. The focus will be on the on-going regulatory changes and methods to reduce the probability of another crisis. The discussion to focus on a myriad of potential causes and whether the same incentives are in place to replay history.

2. Tuesday January 21 10:30ET

Risk[ICF+IIF]/Investing in Emerging Markets [ICF+IIF]

The most of session will be devoted to understanding the concept of risk. We will discuss traditional risk exposure, standard deviation, beta, skew, VaR, uncertainty and ambiguity. A good application is investment in emerging markets. Understanding risk is critical to both investment and corporate finance.

3. Thursday January 23 10:30ET


I will talk about my research on hedging and risk management. I will review the current theories and discuss the "practice" of risk management both from my CFO research and from my experience as an advisor to many prominent companies.

4. Monday January 27 10:30ET

Commodities in Investment and Corporate Finance[ICF+IIF]

In most finance texts, there is little or no mention of commodities. This is an important and relatively new asset class. Corporations need to manage their commodity risk. Portfolio managers invest for various reasons in commodities. If we have time, I will talk about my research on gold. Interestingly, the value of gold is about 9% of the value of the combined world market capitalization of all equities and bonds.

5. Thursday January 30 10:30ET

Political Risk [ICF+IIF]

I will discuss my research on measuring political risk. The setting here is to develop a way to take political risk into account for both direct (corporate finance) and portfolio (investment finance). I have new research that extracts "political risk spreads" from sovereign spreads.

6. Monday February 3 10:30ET

Large Scale Project Evaluation [ICF]

How to evaluate large scale projects in international markets. While this topic seems oriented to ICF, it is now common for IIF to use these techniques for identifying firms to outright buy for their portfolios.

8. Monday February 10 10:30ET

Investment Styles [IIF]

A discussion of different investment styles. While this topic is more oriented to IIF, there will be an important discussion on the "cost of capital" which is highly relevant for the ICF.

9. Thursday February 13 10:30ET

Common Mistakes in Investment Management [IIF] and Corporate Finance [ICF]

The first part will discuss common mistakes I have seen over the years in the practice of investment management. This will include details of a number of due diligences that I performed. The second part will discuss important issues in the practice of corporate report from a new piece of research published in December 2013. .

10. Monday February 17 10:30ET

Topic Du Jour [ICF+IIF]

The class chooses topics on IIF and the other ICF.

12. Monday February 24 10:30ET

Class Presentations II [ICF+IIF]

The time allotment depends on the enrollement. Presentations need to allow time for questions. Last half hour for course summary.