Quantitative Analysis

A.
Objectives
The module is divided into two parts: quantitative methods and macroeconomics. On quantitative methods, the
goal is to provide a guide to applying quantitative analysis to the investment process. It covers knowledge and
techniques needed to utilize quantitative methods. On macroeconomics, the focus is to equip students with the
know-hows and a sense to critically analyze problems and events evolving in the global economic
developments and the financial markets.
B. Intended Learning Outcomes

On completion of the module, students should be able to:
1. apply the techniques of financial mathematics and statistics to solve investment management
problems;
2. compute key financial statistics and carry out tests to ascertain the validity of these statistics;
3. interpret and analyze macroeconomic phenomena and describe how they impact investment
decisions;
4. apply macroeconomic principles and techniques to analyze practical problems in investment
management.
C. Teaching Schedule (Indicative)
Week Topics to cover

Part I: Quantitative Methods for Investment Management
a. Time Value of Money
 Interpret interest rates
 Understand the concept of compounding
1  Calculate and interpret present value (PV) and future value (FV) of a single sum
of money, and ordinary annuity, annuity due and perpetuity
b. Discounted Cash Flow Analysis
 Calculate and interpret net present value (NPV) and internal rate of return (IRR)
 Make capital budgeting decisions using NPV and IRR rules
2 c. Basic Statistical Concepts
 Measures of Central Tendency and Dispersion
 Symmetry and Skewness in Return Distribution
 Kurtosis in Return Distribution
 Using Geometric and Arithmetic means
d. Probability Concepts &Common Probability Distributions
 Probability, Expected Value, and Variance
 Portfolio Expected Return and Variance of Return
 Discrete Random Variables (Discrete Uniform Distribution, Binomial Distribution)
 Continuous Random Variables (Continuous Uniform Distribution, normal
Page 1
Distribution, Lognormal Distribution)
e. Sampling and Estimation
 Simple Random Sampling
 Distribution of the Sample Mean
 The Central Limit Theorem
 Point and Interval Estimates of the Population Mean
3  Confidence Intervals for the Population Mean
 Sampling Bias (Data-Mining Bias, Sample Selection Bias, Look-Ahead Bias,
Time-Period Bias)
f. Hypothesis Testing
 Hypothesis Tests Concerning the Mean (z-test, t-test)
 Hypothesis Tests Concerning Variance (chi-square test, F-test)
g. Regression Analysis (Linear and Multiple)
 Distinguish between the dependent and independent variables in a linear
regression;
 Formulate a null and alternative hypothesis about a population value of a
regression coefficient and determine the appropriate test statistic and whether
the null hypothesis is rejected at a given level of significance
4  Calculate and interpret a confidence interval for the predicted value of the
dependent variable
 Describe the use of analysis of variance (ANOVA) in regression analysis,
interpret ANOVA results, and calculate and interpret the F-statistic
 Formulate a multiple regression equation to describe the relation between a
dependent variable and several independent variables and determine the
statistical significance of each independent variable;
h. Portfolio Management
 Explain risk aversion and its implications for portfolio selection
 Calculate and interpret portfolio standard deviation;
 Describe the effect on a portfolio’s risk of investing in assets that are less than
perfectly correlated
5  Describe and interpret the minimum-variance and efficient frontiers of risky
assets and the global minimum-variance portfolio
 Explain the selection of an optimal portfolio, given an investor’s utility (or risk
aversion) and the capital allocation line
 Describe the implications of combining a risk-free asset with a portfolio of risky
assets (Capital allocation line (CAL) and the capital market line (CML))
6  Explain systematic and nonsystematic risk, calculate and interpret beta
 Explain the capital asset pricing model (CAPM), including its assumptions, and
the security market line (SML)
Page 2
Calculate and interpret the expected return of an asset using the CAPM;
 Describe and demonstrate applications of the CAPM and the SML
 Calculate and interpret the Sharpe ratio, Treynor ratio, M2, and Jensen’s alpha
Part II Macroeconomics
a. Economic Data Interpretation
 Understand the flow of the four macroeconomic markets
 Calculate and explain gross domestic product (GDP) using expenditure and
7. income approaches
 Types of inflation indicators and method of estimating inflation
 Types of unemployment
 Understand different stages of a business and performance of economic data in
each stage
b. AD-AS Model
 Understand the meaning of AD curve
 Explain the differences between VSRAS, SR AS and LR AS curves
8  Evaluate factors that might cause a shift of AD curve, SR AS curve and LR AS
curve
 Combine AD-AS model with the business cycle and model different stages of the
business using the model
c. Fiscal Policy
 Keynesian theory and the multiplier principle
 Understand different fiscal policy tools
9
 Differentiate expansionary and expansionary fiscal measures
 Describe limitations of fiscal policy
 Automatic stabilizers
d. Monetary Policy
 Understand the functions of a central bank
 Describe tools used to implement monetary policy
 Describe the monetary transmission mechanism
10
 Determine whether a monetary policy is expansionary or contractionary
 Explain how quantitative easing (QE) can stimulate a country’s economy
 Understand Federal Reserve’s average inflation targeting framework
 Describe limitations of monetary policy
D. Assessment
Weighting
Assignment 30%
Page 3
Closed-book Examination 70%
Total: 100%
E. Reference Readings
 DeFusco, Richard A., McLeavey, Dennis W., Pinto, Jerald and David Runkle, (2007).
Quantitative Investment Analysis. 2nd Edition. John Wiley & Sons.
 Hubbard, R. Glenn, O’Brien, Anthony Patrick, (2019). Essentials of Economics. 6th Edition,
Pearson.
 Levine, David M., Stepgan, David F., Szabat, Kathryn A., (2017). Statistics for Managers Using
Microsoft Excel. 8th Edition. Pearson.
 Parkin, Michael, (2012). Economics. 8th Edition. Addison Wesley South-western.
Page 4

Quantitative Analysis

Uploaded by

Copyright:

Available Formats

Quantitative Analysis

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Quantitative Analysis

Uploaded by

Copyright:

Available Formats

A.

B. Intended Learning Outcomes

C. Teaching Schedule (Indicative)

Week Topics to cover

You might also like