Australian School of Business School of Banking and Finance FINS5541 ADVANCED INVESTMENT AND FUNDS MANAGEMENT COURSE OUTLINE SEMESTER 1, 2010 [FINS5541 – Advanced Investment and Funds Management] TABLE OF CONTENTS STAFF CONTACT DETAILS 2 COURSE DETAILS 2.1 Teaching Times and Locations 2.2 Units of Credit 2.3 Summary of Course 2.4 Course Aims and Relationship to Other Courses 2.5 Student Learning Outcomes 3 3 LEARNING AND TEACHING ACTIVITIES 3.1 Approach to Learning and Teaching in the Course 3.2 Learning Activities and Teaching Strategies defined.Error! Bookmark not defined Error! Bookmark not ASSESSMENT 4.1 Formal Requirements 4.2 Assessment Details 4.3 Assessment Format 4.4 Assignment Submission Procedure 4.5 Late Submission 6 7 ACADEMIC HONESTY AND PLAGIARISM COURSE RESOURCES 7 COURSE EVALUATION AND DEVELOPMENT STUDENT RESPONSIBILITIES AND CONDUCT 10 8.1 8.2 8.3 8.4 8.5 8.6 10 10 10 11 11 11 Workload Attendance Special Consideration and Supplementary Examinations General Conduct and Behaviour Occupational Health and Safety Keeping Informed ADDITIONAL STUDENT RESOURCES AND SUPPORT 11 10 COURSE SCHEDULE 12 [FINS5541 – Advanced Investment and Funds Management] Staff Contact Details Coordinator: Office: Telephone: E-mail: Consultation time: VT Alaganar Room 349, ASB Building 9385-5856 vt_alaganar@ssga.com; vt.alaganar@iinet.net.au Monday 5:15-5:55 pm or by appointment The preferred communication with the course coordinator is via email Course Details 2.1 Teaching Times and Locations Monday 18:00 – 21:00; Webster 256 (K-G14-256) Computer Lab Meetings (See schedule in Section 10) QUAD 1031 2.2 Units of Credit This course has six units of credit and three contact hours per week 2.3 Summary of Course This course is one the two main offerings for the funds management specialisation in the MCOM program This course develops both theoretical and practical knowledge in the area of funds management focussing on advanced techniques in asset management and evaluation of investment performance Moreover, we will review the most recent research on topics such as hedge funds, private equity, and alternative investments 2.4 Course Aims and Relationship to Other Courses This course is one the two main offerings for the funds management specialisation in the MCOM program This course builds upon the foundation laid down by FINS5517 It requires knowledge of derivative securities e.g FINS5535 As in any modern investment topic to understand the issues involved a fair amount of analytical skill is required For example, the participants should have basic mathematical ability in dealing with algebraic manipulation and some understanding of calculus Also, the participants should be familiar with Excel since all assignments would require the use of Excel Successful portfolio management requires the development of a broad array of quantitative and qualitative skills, involving an analysis of both the investment instruments available in the capital market and the objectives and constraints of the ultimate investor The purpose of this course is to acquaint the student with [FINS5541 – Advanced Investment and Funds Management] conventional and state-of-the-art tools currently employed in the asset management industry [FINS5541 – Advanced Investment and Funds Management] 2.5 Student Learning Outcomes By the end of this course you will have a working knowledge of: a Managing a pension fund’s liability with a suitable investment in a bond portfolio, b Hedging interest rate risk of a fixed income portfolio, c Various components of collateralized mortgage securities, d Structuring a portfolio with long time horizon in mind, e Decision making in large scale real asset investment, f Investment styles in mutual funds and hedge funds g Building a stock selection model using credit risk measures h How endowment funds are managed i Evaluating the performance of investment strategies Learning and Teaching activities 3.1 Approach to Learning and Teaching in the Course This course consists of weekly three hour sessions Besides explaining the topic/readings of the week, at least 45 minutes will be set aside for interactive discussions of the week’s topic plus any relevant topics the students bring to the class As and when appropriate the practice problems would be solved in the class with the students’ input All these would require the students to pre-read the topic material before attending the class The students are encouraged to ask questions as the lecture proceeds This is a natural way to provide continuous feedback in the learning process There are two assignments First assignment will be on “Credit Risk Modelling and Equity Return prediction” which will be due for submission during the first class meeting after the mid-semester recess on April 23, 2009 The second assignment is due at the end of the session on June 4, 2009 which will be titled, “Market Timing Techniques applied to Equity Investing’ A handout with details and required basic data for the two projects will be handed out in class 3.2 Learning Activities and Teaching Strategies a Active class participation is encouraged Discussions may cover any relevant topic of interest, b Exercises and examples are selected such that these represent typical real life problems, c Sufficient practice problems are provided (without solutions) and the solutions would be worked out by class participation, d Pre-reading of topics: Although the students may not understand all the concepts in the lecture notes, the familiarity with the subject matter helps progress faster in the class, [FINS5541 – Advanced Investment and Funds Management] e Since investment climate is driven by the underlying economic fundamentals, we will endeavour to point out such emerging dynamics and how these might affect investment decisions, f Individual assignments: The assignments would require the student to deal with a topic that is not discussed in the class but is a related one This will help the student to develop self sufficiency in analysing practical problems and this simulates the condition under which a typical investment analyst would work in the industry g Four of the class room meeting will be held at the computer lab as given in the class schedule Some of the time during these meetings will be devoted to helping the students with the assignment Assessment 4.1 Formal Requirements To pass this course you must: Achieve a composite mark of at least 50, and, Make a satisfactory attempt at all assessment tasks 4.2 Assessment Details There are four components of the assessment process in this course These are aimed at individual performances The components have been designed to make the students feel and become confident about solving problems in real life situations e.g in the funds management industry The mid-session test will focus on solving problems similar to those in the practice problem sheets which are solved in the class with the help from the class It will concentrate only on the first five lecture topics The assignment components reinforce the student learning outcome items in a much larger context since this is carried out over several weeks One of the assignments will help develop the students’ own ability to deal with large volume of information and make sensible decision to solve a practical problem The final examination component will cover the material covered during the entire semester As part of the formal feedback, the mid-session test questions will be discussed in the class in the week following the test Of course, the student will receive regular feedback during the class as described under teaching strategies in section 3.2 [FINS5541 – Advanced Investment and Funds Management] 4.3 Assessment Format Assignments will be done in groups with three students in each Assessment Task Summary presentation of Readings Mid-term Assignment Mid-term Exam Weighting End of Term Assignment 20% Final Exam 40% 5% 15% 20% Learning Outcomes assessed Weekly (each group will get presentations of assigned weekly readings) Group task Development of a credit risk model Group task Due Week ( April 12 ) in class Assess the understanding of the material covered in weeks 1-5 In Class – Week (April 12) Building a stock selection model using default risk measures developed earlier and other variables provided Due Week 12 (May 31) in class Group task Assess the understanding of the material covered in weeks 1-12 UNSW Final Exam Schedule 4.4 Assignment Submission Procedure Assignment 1: A softcopy (USB Stick) due on April 12 in class Assignment 2: A softcopy (USB Stick) due on May 31 in class 4.5 Late Submission Late submission of assignment in this course will not be accepted This will help meeting all the results submission deadlines Academic Honesty and Plagiarism The University regards plagiarism as a form of academic misconduct, and has very strict rules regarding plagiarism For UNSW’s policies, penalties, and information to help you avoid plagiarism see: http://www.lc.unsw.edu.au/plagiarism/index.html as well as the guidelines in the online ELISE tutorial for all new UNSW students: http://info.library.unsw.edu.au/skills/tutorials/InfoSkills/index.htm Course Resources Books and References There is no fixed textbook requirement for this course However, much of the course relies on materials from the books by Luenberger and Arditti [FINS5541 – Advanced Investment and Funds Management] Arditti, F D (1996), Derivatives, Harvard Business School Press (AD) Luenberger, D G (1997), Investment Science, Oxford University Press (DL) The relevant lecture notes and related materials will be available from the course web page on WebCT Several journal articles will be required as indicated below Copies of these articles may be obtained from the hard copy journals in the library or from the electronic sources provided by the library As and when appropriate the relevant addresses of the internet sites will be provided through the course web site on WebCT Additional notes, exercises and other relevant material may be distributed in the class or made available via the course web page for enrolled students Journal Articles Required for Lectures (Students should obtain these articles from the library before the lectures start) Reading List: Lecture Week 1: None Lecture Week 2: Model Risk W2_1 Models, Derman, Financial Analysts Journal, Jan.-Feb 2009, 28-33 W2_2 Is the Recent Financial Crisis Really a “Once-in-a-Century” Event?, Zhou and Zhu, Financial Analysts Journal, Jan.-Feb 2010, 24-27 W2_3 Is There a Free Lunch in Emerging Market Equities? Bekaert, G and Urias, M S., Journal of Portfolio Management, 1999 spring, 83-95 Lecture Week 3: Default Risk W3_2 Quantifying Credit Risk I: Default Prediction, Stephen Kealhofer, CFA Publications, January/February 2003, 3-44 W3_3 Estimating Default Probabilities of Corporate Bonds over Various Investment Horizons, Edward I Altman, CFA Institute, CFA publications, March 2006, 65-71 Lecture Week 4: Liability Funding W4_1 Liability-Driven Investment Strategies for Pension Funds, Roman von Ah CFA Publications, 2008, 39-46 Is the Recent Financial Crisis Really a “Once-in-a-Century” Event? [FINS5541 – Advanced Investment and Funds Management] Lecture Week 5: CMOs W5_1 Random Error in Prepayment Projections, Hayre, L S ,The Journal of Fixed Income, September 1997, 77-84 Lecture Week 7: Alternate Investments W7_1 A Downside-Risk Approach to Real Estate Portfolio Structuring, Sivitanides, P S., Journal of Real Estate Portfolio Management, 1998 Vol (2), 159-168 W7_2 Emerging Markets, Downside Risk and the Asset Allocation Decision, Stevenson, S., Emerging Markets Review, 2001 Vol 2, 50-66 Lecture Week 8: Time Diversification W8_1 Risk, Rationality, and Time Diversification, Olsen, R.A., Khaki, M., Financial Analysts Journal, 1998, 58-63 W8_2 On the Risk of Stocks in the Long Run, Bodie, Z., Financial Analysts Journal, May-June 1995, 18-22 Lecture Week 9: International Diversification and Exchange Rate Risk W9_1 Universal Hedging: Optimising Currency Risk and Reward in International Equity Portfolios, Black, F Financial Analysts Journal, May-June 1995, 161-167 W9_2 Managing Currency Risks in International Portfolios, Bisset, A., CFA Publications, 1999, 55-65 Lecture Week 10 : Hedge Funds, Investment Styles W10_1 Hedge Funds: Risk and Return, Malkiel, B.G., and Saha, A., 2005, F Financial Analysts Journal, May-June 1995, 80-88 W10_2 Empirical characteristics of Dynamic Trading strategies; the Case of Hedge Funds, Fung, W and Hsieh, D.A The Review of Financial Studies (vol 10), 1997, 275-302 Lecture Week 12: Current Trends in Investment Management W11-1 Asset Allocation for the Endowment Fund: A case study, Adams, R.H., ICFA, 1987, 28-35 Course Evaluation and Development UNSW's Course and Teaching Evaluation and Improvement (CATEI) Process (http://www.ltu.unsw.edu.au/ref4-5-1_catei_process.cfm) is one of the ways in [FINS5541 – Advanced Investment and Funds Management] which student evaluative feedback is gathered Significant changes to courses and programs within the School are communicated to subsequent cohorts of students In this course the students would be asked to complete this feedback process in week 12 during the lecture hour Student Responsibilities and Conduct Students are expected to be familiar with and adhere to university policies in relation to class attendance and general conduct and behaviour, including maintaining a safe, respectful environment; and to understand their obligations in relation to workload, assessment and keeping informed Information and policies on these topics can be found in the ‘A-Z Student Guide’: https://my.unsw.edu.au/student/atoz/ABC.html See, especially, information on ‘Attendance and Absence’, ‘Academic Misconduct’, ‘Assessment Information’, ‘Examinations’, ‘Special Consideration’, ‘Student Responsibilities’, ‘Workload’ and policies such as ‘Occupational Health and Safety’ 8.1 Workload It is expected that you will spend at least ten hours per week studying this course This time should be made up of reading, research, working on exercises and problems, and attending classes In periods where you need to complete assignments or prepare for examinations, the workload may be greater Over-commitment has been a cause of failure for many students You should take the required workload into account when planning how to balance study with employment and other activities 8.2 Attendance Your regular and punctual attendance at lectures and seminars is expected in this course University regulations indicate that if students attend less than eighty per cent of scheduled classes they may be refused final assessment 8.3 Special Consideration and Supplementary Examinations You must submit all assignments and attend all examinations scheduled for your course You should seek assistance early if you suffer illness or misadventure which affects your course progress For advice on UNSW policies and procedures for granting special consideration and supplementary exams, see: ‘UNSW Policy and Process for Special Consideration’: https://my.unsw.edu.au/student/atoz/SpecialConsideration.html [FINS5541 – Advanced Investment and Funds Management] 10 8.4 General Conduct and Behaviour You are expected to conduct yourself with consideration and respect for the needs of your fellow students and teaching staff Conduct which unduly disrupts or interferes with a class, such as ringing or talking on mobile phones, is not acceptable and students may be asked to leave the class More information on student conduct is available at: www.my.unsw.edu.au 8.5 Occupational Health and Safety UNSW Policy requires each person to work safely and responsibly, in order to avoid personal injury and to protect the safety of others For more information, see https://my.unsw.edu.au/student/atoz/OccupationalHealth.html 8.6 Keeping Informed You should take note of all announcements made in lectures, tutorials or on the course web site From time to time, the University will send important announcements to your university e-mail address without providing you with a paper copy You will be deemed to have received this information It is also your responsibility to keep the University informed of all changes to your contact details Additional Student Resources and Support The University and the ASB provide a wide range of support services for students, including: ASB Education Development Unit (EDU) (www.business.unsw.edu.au/edu) Academic writing, study skills and maths support specifically for ASB students Services include workshops, online and printed resources, and individual consultations EDU Office: Room GO7, Ground Floor, ASB Building (opposite Student Centre); Ph: 9385 5584; Email: edu@unsw.edu.au UNSW Learning Centre (www.lc.unsw.edu.au ) Academic skills support services, including workshops and resources, for all UNSW students See website for details Library training and search support services: http://info.library.unsw.edu.au UNSW IT Service Desk: Technical support for problems logging in to websites, downloading documents etc Library, Level 2; Ph: 9385 1333 Website: www.its.unsw.edu.au/support/support_home.html UNSW Counselling Service (http://www.counselling.unsw.edu.au) Free, confidential service for problems of a personal or academic nature; and workshops on study issues such as ‘Coping With Stress’ and ‘Procrastination’ Office: Level 2, Quadrangle East Wing ; Ph: 9385 5418 Student Equity & Disabilities Unit (http://www.studentequity.unsw.edu.au) Advice regarding equity and diversity issues, and support for students who have a disability or disadvantage that interferes with their learning Office: Ground Floor, John Goodsell Building; Ph: 9385 4734 [FINS5541 – Advanced Investment and Funds Management] 11 10 Course Schedule Date Week# Topic March 1 March March 15 March 22 March 29 April April 12 April 19 April 26 May Current State of Financial Markets and Fund Management Industry Discussion on Assignments/Group Formation for the Assignment Bond Valuation (Part I) Utility Theory, Alternative measures of risk, Tracking Error, Optimisation, Performance Measurement Issues, Credit Risk Models, Bond Valuation (Part II) AD Ch.9 Assigned Readings for Week Basic theory of interest; fixed income securities; term structure of interest rates; duration; immunisation AD Ch.3,4 Assigned Readings for Week Liability funding strategies; discrete time model of interest rate and valuing interest rate sensitive securities AD Ch.16 Assigned Readings for Week Discrete time model of interest rate (continued) Mortgage derivatives; Prepayment rates and models; CMOs, STRIPs AD Ch.14, DL Ch.18,19 Assigned Readings for Week Mid-semester Recess Mid-semester in-class Exam Introduction to the field of real options and its application to evaluate mining lease, Methodological issues in Real Estate Investing, Emerging Markets AD CH 12 Assigned Readings for Week Time diversification and the risk of stock portfolio in the long run Assigned Readings for Week International diversification and exchange rate risk Assigned Readings for Week May 10 10 May 17 11 May 24 12 Hedge Funds, CTAs; Style regression in analysing hedge fund exposures and currency crisis Endowment Fund Investing Assigned Readings for Week 10 Current Trends in Investment Management Assigned Readings for Week 11 Assessment Class Exercise Class Problems Class Problems Computer Lab Class Problems Computer Lab Class Problems Class Problems Class Problems Computer Lab Computer Lab Class Exercise Computer Lab Project Presentations/Review [FINS5541 – Advanced Investment and Funds Management] 12 ... market and the objectives and constraints of the ultimate investor The purpose of this course is to acquaint the student with [FINS5541 – Advanced Investment and Funds Management] conventional and. .. MCOM program This course develops both theoretical and practical knowledge in the area of funds management focussing on advanced techniques in asset management and evaluation of investment performance... topics such as hedge funds, private equity, and alternative investments 2.4 Course Aims and Relationship to Other Courses This course is one the two main offerings for the funds management specialisation