Asset Allocations and Investment Strategies
2nd Semester, Course Code: ΜΕΧΤΕ202
Credits: 7,5
Learning Outcomes
This course covers the field of investment. It describes the main participants, their objectives and constraints, and the major investment markets. It covers investment strategies for bonds, equities, and structured products, including the use of derivatives in managing risk. Portfolio optimization and asset allocation are covered, as well as how to measure portfolio performance. Ethical investment, the role of taxation, and behavioral investment biases are also explored. Students should be able to evaluate individual securities, investment strategies, and portfolio performance in the context of investor objectives, constraints and behavioral biases.
Upon successful completion of the course, students should
- Be familiar with the major asset markets and market participants.
- Understand how the major stock indices are constructed.
- Know how to perform portfolio optimization but also understand its practical challenges and limitations.
- Be familiar with various performance evaluation metrics as well as performance attribution.
- Be familiar with alternative equity strategies, such as naive diversification, bond strategies, such as immunization, and how derivatives can be used to mitigate risk.
- Understand the role of investor behavioral biases and the importance of investor objectives beyond pure performance.
General Competences
- Search for, analysis and synthesis of data and information, with the use of the necessary technology
- Adapting to new situations
- Decision-making
- Working independently
- Team work
- Working in an interdisciplinary environment
- Production of new research ideas
Course Content
- Main market participants (households, investment companies, pension funds, insurance companies, sovereign wealth funds) and their goals
- Major asset classes and markets (equities, bonds, derivatives)
- Equity index construction (value-weighted, price-weighted, equally-weighted)
- Main equity market indexes (S&P500, Dow Jones, FTSE, Nikkei)
- Portfolio optimization with two and multiple assets and diversification
- Practical issues of portfolio optimization due to parameter estimation error
- Portfolio performance evaluation (Jensen’s alpha, Sharpe ratio, Treynor measure) and performance attribution
- Alternative investment strategies such as naive diversification and momentum
- Equity market timing using financial ratios and macroeconomic variables
- Bond strategies (passive, indexing, immunization)
- The use of derivatives in managing risk (hedging with futures, protective puts)
- The role of transaction costs and taxes
- The impact of behavioral biases on investment performance (overconfidence, disposition effect, loss aversion, under-diversification)
- Ethical and ESG investing (Socially Responsible Investing (SRI) funds, Environmental, Social, and Governance (ESG) funds, Impact funds, Faith-based funds)
Student Performance Evaluation
Assessment will be based on (a) homework assignments (50%) and (b) a final project (50%). Homework will be assigned every 3 weeks on average during the semester. For the homework assignments and the project students will be asked to analyze real data, use Excel, or an equivalent spreadsheet program, and write simple code in R, Matlab, or an equivalent programming language. Students can discuss the assignment questions with each other, but everyone must submit individual assignments.
Bibliography
Suggested Bibliography
- Bodie, Z. Kane, A. & Marcus A., Investments, McGraw-Hill, latest edition.
- Elton, E. J., Gruber, M. J., Brown S. J., & Goetzmann, W. N., Modern Portfolio Theory and Investment Analysis, Wiley, latest edition.
- Ang, A., Asset Management: A Systematic Approach to Factor Investing, latest edition.
Related Academic Journals