Lecture 1

1. Introduction to the Course 2. Basic Knowledge in Financial Markets 3. Financial Asset Categories 4.
Market Indices
Investments and Portfolio Analysis

Lecture 1: Introduction to Financial Market
Dr. Maxime Couvert
University of Hong Kong
Fall, 2023
Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 1 / 67

Today’s agenda
1. Introduction to the Course
2. Basic Knowledge in Financial Markets
3. Financial Asset Categories

3.1 Fixed-income securities
3.1.1 The money market
3.1.2 The bond market
3.2 Equity securities
3.3 Derivatives
4. Stock and Bond Market Indices

4.1 Weighting Schemes
4.1.1 Price-weighted indices
4.1.2 Value-weighted indices
4.1.3 Equally-weighted indices
4.2 Stock splits, dividends, composition changes
4.3 Indices for non-listed assets
Part 1. Introduction to the course
1. Introduction to the Course 2. Basic Knowledge in Financial Markets 3. Financial Asset Categories 4. Market Indices
Part 1. About me
Contact Details:
Dr. Maxime Couvert
▶ email: mcouvert@hku.hk
▶ phone: 3917 2192
▶ office: KKL 1006
My Research Interests:
Mutual Funds
Shareholder Activism
ESG Investments

Part 1. Teaching Assistants
Contact Details:
Mr. Jason Tse
▶ email: jasontch@hku.hk
▶ phone: 2857 8308
TBD
▶ email: TBD
▶ phone: 2857 8308

Part 1. Assessment Methods
4 types of assessment:
▶ Assignment(s)/Project(s): 25%
▶ Midterm Exam: 20%
▶ Class/Tutorial Participation: 5%
▶ Final Exam: 50%

Part 1. Exams
Midterm:
▶ Date: Nov. 2, 2023 - 7:00-9:00pm
▶ Review session: a session will take place on the last lecture before the
midterm
▶ Formula sheet: a formula sheet will be provided
Final:
▶ Date: TBA
▶ Review session: a session will take place on the last lecture before the
final
▶ Formula sheet: a formula sheet will be provided

Part 1. Assignments
There will be 2 group assignments

▶ The assignments will be posted on Moodle two weeks before the due
dates
▶ The first assignment due date is Oct. 11, 2023
▶ The second assignment due date is Nov. 22, 2023
Please form groups of 4-5 students (you are allowed to team up with
students from subclasses A, B, C, and D)
Fill the group members in the ”Investment Competition” Excel sheet

by Tuesday, September 19

Part 1. FINA2320 - Investment Competition
Source: https://www.wealthandfinance-news.com/7-things-people-get-terribly-wrong-about-stocks-and-the-stock-market/

FINA2320 Capital Management Ltd., one of the best hedge funds in

Hong Kong, would like to recruit its 2024 summer interns. Cindy, the
Chief Investment Officer, has decided to adopt a new recruitment strategy.
She will organize an investment competition and have teams of
prospective candidates compete against each another. She will hire the
team with the best portfolio performance.


Rules of the investment competition:
1 Report the names, UID, email of your team members in the Excel
sheet
2 Choose a name for your team and report it in the Excel sheet.
3 Your team must construct a (approximately) USD1,000,000 portfolio
composed of 2 stocks.
4 Choose the weights that you assign to each stock in the portfolio.
The sum of the weights should equal 1 and weights should be
between [-400%,+400%].
5 Provide a short rationale for your decision to invest in each stock.
(max 50 words)
6 Submit your Excel on Moodle by September 19, 2023
7 On November 10, Cindy will analyze the performance of the different
teams and declare the winner.
There is no grade for the investment competition
If you want to take it seriously... good... if you don’t... good too
But you have to participate because

▶ You will need to use your investment competition portfolio for the
graded assignments
▶ Your investment competition team is going to be the same as your
assignment team

Part 1. Artificial Intelligence Tools

Welcome to 2023!
You are allowed to use AI tools (e.g., ChatGPT) for the investment
competition as well as for assignments
However, if you do use AI tools,
You have to state it clearly:
▶ State which tool you used
▶ State whether you thought it was: useless, somehow useful, or very

useful
Using AI will not be an excuse for wrong answers. So the risk of AI

use is on you.

Part 1. In-class participation
I will use Mentimeter for the first part of the semester
Then, I’ll try to reduce the use of Mentimeter and see how it goes

Part 1. New to 2023!!!
Current Affairs
We will try to dedicate 5min at the beginning of each session to

discussing current affairs that are related to the course
That will require your active participation:
▶ If you see something in the news that it relevant to our course and that
you would like me to discuss, email me!
Investment Strategy Examples
For every lecture, I will try to talk a bit of a cool investment strategy
related to the lecture

Part 1. Other administrative matters
Office hours:
▶ Mondays from 1:30pm, Office KK1006 (+Zoom)
Emails:
▶ Regarding exercise sessions and administrative matters: please contact
the teaching assistants
▶ For other questions: I will answer the questions in class such that
everyone benefits from answers
Recordings:
▶ I will provide the recording of one of the sections on Moodle
▶ I will not answer emails asking me when I upload the recording

Part 1. Textbook
Investments, 13th Edition, Zvi Bodie, Alex Kane, and Alan J.

Marcus, McGraw-Hill. 2023.
Part 1. Course Objectives
1 Gain a fundamental knowledge of investment strategies

2 Understand equity portfolio management techniques
3 Understand different asset pricing models and equity valuation
techniques
4 Understand the concepts and applications of capital market
equilibrium and market efficiency
5 Understand portfolio performance evaluation and current issues
about investments and portfolio management
6 Introduction to financial modeling using Excel

Part 1. Course Content
Objective 1: Fundamental knowledge of investment strategies
Basic Knowledge in Financial Markets (Ref.: Chapters 1 and 2)
How to Trade Securities? (Ref.: Chapter 3)
Mutual Funds and Other Investment Companies (Ref.: Chapter 4)

Objective 2: Understand equity portfolio management techniques
Portfolio Statistics (Ref.: Chapter 5)
Markowitz Portfolio Selection Model (Ref.: Chapters 6 and 7)
Index Models (Ref.: Chapter 8)

Objective 3: Understand different asset pricing models and equity

valuation techniques
CAPM (Ref.: Chapter 9)
Arbitrage Pricing Theory (Ref.: Chapter 10)
Equity Valuation Model (Ref.: Chapter 18.3)

Objective 4: Understand the concepts and applications of capital market

equilibrium and market efficiency
Market Efficiency (Ref.: Chapter 11)


Objective 5a: Understand portfolio performance evaluation
Portfolio Performance Evaluation (Ref.: Chapter 24)
Objective 5b: Current issues about investments and portfolio

management
Introduction to Sustainable Finance
Objective 6: Introduction to financial modelling using Excel
Assignment 2
Part 1. Questions?
Any question?

Part 2. Basic Knowledge in Financial Markets
(Ref. Chapter 1)
Part 2. What is an investment?
Definition
An investment is the current commitment of money or other resources in
the expectation of future benefits.
Investing therefore implies that

▶ You are willing to sacrifice resources today...
in the hope that...

▶ your sacrifice will be rewarded with benefits in the future.

Part 2. The investment decision
Investing therefore implies decision making on:

▶ How much to invest vs. consume?
▶ How to invest?
⋆ Which assets?
⋆ Which proportion?
▶ How long are you willing to sacrifice your resources for?
▶ Which amount of risk are you willing to take?
▶ What benefits can you expect?
All these questions are part of the investment decision.
This class will provide you with tools to make such investments
decisions.
Question: Is saving an investment?

Part 2. Financial vs. Real Assets
Definition
Real assets are assets that you can directly use for the production of goods
or services.
For example: Land, machines, or knowledge.
Definition
Financial assets are means by which an individual holds claims on real
assets.
For example: Stocks, bonds, or options.
Question: Are $100 notes financial or real assets? What about your
bachelor education?

Part 2. Financial Assets
We generally classify financial assets in three large categories:
▶ Fixed-income securities: they are securities that promise a stream of

income that is either fixed or determined by a fixed formula. E.g.
bonds
▶ Equity securities: they are corporation ownership titles. E.g. stocks
▶ Derivative securities: they are more complex financial assets. E.g.
options or forwards
We will study these securities in more details later in the course.

Part 2. Financial markets are very competitive
Financial markets competitiveness implies a risk-return trade-off
Financial markets competitiveness implies markets efficiency
In other words, ”there is no free lunch”

Part 2. Financial markets’ main players

Three main players:
1 Firms: net demanders of capital
2 Households: net suppliers of capital
3 Governments: can borrow or lend
Other important players:

▶ Financial intermediaries: bring suppliers and demanders of capital
together (banks, investment companies, insurance companies, etc.)
▶ Investment banks: provide services that help firms raise capital
(economies of scale and expertise)
▶ Venture Capital and Private Equity: provide capital to non-listed firms
(e.g. start-ups)
▶ Fintech: firms that apply technological innovation to provide finance
related products and services.

Reading
Read Chapter 1 of the reference book.

Part 3. Financial asset categories
Ref. Chapter 2
Part 3. Financial asset categories
Three main financial asset categories:
1 Fixed-income
2 Equity
3 Derivatives

3.1. Fixed-income securities
Part 3.1. Fixed-income securities
Definition
Fixed-income securities are securities that promise a stream of income that
is either fixed or determined by a fixed formula.
Why do fixed-income securities pay a rate of return?


Definition
Fixed-income securities are securities that promise a stream of income that
is either fixed or determined by a fixed formula.
Why do fixed-income securities pay a rate of return?

▶ Inflation risk:
⋆ Assume that a 10-year bond with a face value of $1M that pays a 2%
fixed annual coupon
⋆ If inflation goes up, the value of the coupons will decrease in real terms
⋆ Investors care about real terms!
⋆ So the higher risk of inflation, the higher the interest rate on the bond
needs to be
▶ Default risk:
⋆ Will the borrower pay back the borrowed amount and the interest on
time?
⋆ The higher the default risk, the higher the interest rate on the bond
needs to be
Two main markets for fixed-income securities:
1 The Money Market
2 The Bond Market

Part 3.1.1. The money market

Key features of the money market:
▶ Debt securities
▶ Very short-term
▶ Highly liquid (almost equivalent to cash)
▶ Very low risk
▶ Large denominations
Main money market securities (we focus on those):

▶ U.S. Treasury Bills
▶ Commercial Paper
▶ Repos and Reverse Repos
Other important money market securities (please read Chapter 2)

▶ Certificates of deposit
▶ Bankers’ Acceptances
▶ Eurodollars
▶ Brokers’ Calls
▶ Federal Funds
Part 3.1.1. Treasury Bills

Often referred to as T-bills
Concept:
▶ The US government borrows money from the public
▶ Investors buy the bill at a discount and the government pays the face
value of the bill at maturity
▶ Example for a $10,000 bill: US government borrows $9,900 today and
pays back $10,000 in one year
Key features:
▶ Short-term: common maturities are 4, 13, 26, or 52 weeks
▶ Most marketable and most liquid of all money market instruments
▶ Very safe: currently, the risk that the US government defaults over the
forthcoming year is almost zero
▶ Small denomination: $100 denominations exist but $10,000 are much
more common
▶ Regularly issued: every week for short maturities, every month for
52-week maturity
Part 3.1.1. Remark: risk-free assets
Definition
The risk free rate is the rate of interest on a theoretically risk-free asset.
In practice, no such asset exists

Because of its core features, the one-month T-bill is often used as a
risk-free asset (e.g. for CAPM)
▶ Almost no risk
▶ Very liquid
A common alternative for risk-free rate proxy is the rate on

short-term German government bills
Over the past few years, we have started to observe negative interest
rates on German government bills

Part 3.1.1. Remark: risk-free assets

Historical risk-free rate
Remarks:
▶ The risk-free rate fluctuates over time
▶ These fluctuations are due to:
⋆ Changes in the Federal Reserve monetary policy (interest rate)
⋆ Changes in inflation
⋆ Changes in investors’ demand for safe assets
Part 3.1.1. Commercial Paper
Concept:
▶ Large, well-known companies issue debt notes
▶ Allows companies to borrow directly from financial markets rather than
from banks
▶ They are short-term
▶ They are generally unsecured (but can be backed by bank credit lines
or other financial assets)
Key features:
▶ Rather safe (although less than a government bill)
▶ Maturities: generally 1 or 2 months
▶ Denominations: generally multiples of $100,000

Part 3.1.1. Repos and Reverse Repos
Repo is the short name for Repurchase Agreement
Concept:
▶ A borrower sells a very safe security to a buyer
▶ The borrower commits to buy back the security at a slightly higher
price after a specified short period
Key features:
▶ Very short-term: usually overnight
▶ Very safe: backed by a very safe security (often a government bond)
▶ Repo rate: interest rate paid by the borrower to the lender on the
amount borrowed
▶ Haircut: It is common that the lender delivers less cash than the
market value of the collateral. The spread is called the haircut.

Part 3.1.1. Repos and Reverse Repos
Other remarks:
▶ Reverse Repo:It is a Repo but from the perspective of the lender
▶ The Repo rate can be used as a proxy for the overnight risk-free rate
▶ Useful to borrow to buy new securities (i.e. leverage a position)
▶ During the 2007-2008 crisis, there was a so-called ”Run on Repos”
⋆ The value of collateral decreased because of increasing counterparty
risk and concerns about liquidity of the bond market
⋆ In consequence, haircuts increased
⋆ The US banking system became effectively insolvent for the first time
since the Great Depression of the 1920’s. (Gorton, Metrick; 2012)
Source: Gorton, G., & Metrick, A. (2012). Securitized banking and the run on repo. Journal of Financial Economics, 104(3),
425-451.

Part 3.1.1. Repo - Example

In t, a borrower (e.g. a hedge fund) sells $10M in treasuries to a
lender (e.g. an asset manager)
In t + 1, a borrower buys back the treasuries at a pre-determined
price $9.09M from the lender
Haircut = 10%
Repo rate = 1%

Part 3.1.2. The bond market
Key features of the bond market

▶ Debt securities
▶ Longer-term than money market
▶ Liquidity depends on the bond (can be highly illiquid)
▶ Tends to be riskier than money market securities
Main bond securities (we focus on those):

▶ Treasury Notes and Bonds
▶ Corporate Bonds
Other important bond securities (please read Chapter 2)

▶ Municipal Bonds
▶ Mortgage Securities
▶ Federal Agency Debt

Part 3.1.2. Treasury Notes and Bonds
Concept:
▶ They represent a large portion of the US government borrowing
▶ T-notes have maturities ranging up to 10 year
▶ T-bonds have maturities ranging from 10 to 30 years
▶ Denomination: $1,000 is the most common but $100 also exists for
both
▶ Coupons: both deliver semiannual interest payments called coupons
Key features:
▶ They are both very liquid
▶ They are both very safe (as the US government is unlikely to default)

Part 3.1.2. Remarks on other types of bonds

Corporate Bonds
▶ Concept:
⋆ Corporations use these bonds to borrow from public markets
⋆ They generally deliver semiannual coupons
⋆ Face-value is generally paid back at maturity
▶ Key Features:
⋆ They are riskier than government bonds (default risk)
Municipal bonds:
▶ Concept:
⋆ Debt securities issued by state and local governments
⋆ Similar to corporate bonds but no federal income tax on their interest
payments
▶ Key features:
⋆ Wide variety of maturities
⋆ Although these are securities that are issued by governmental
authorities, they can be quite risky
⋆ Defaults are not uncommon among local US public entities
⋆ Examples of large municipal bonds’ defaults: The City of Detroit in
2013 ($US20B), the government of Puerto Rico in 2015 ($72B)
Part 3.1.2. Investment strategy - Vulture funds
Investment Strategy Example 1 - Vulture Funds
Definition
Vulture Funds are investment (hedge) funds that specialize in acquiring
fixed-income securities (generally bonds) of near-default entities and that
try to recover the borrowed money


Investment Strategy Example 1 - Vulture Funds

Investment Strategy 1 - Vulture Funds
Argentina vs. Elliott Capital Management (Elliott)

▶ In 2001, Argentina defaulted on its $100B sovereign debt and
restructured it, cutting payouts down to 30 cents per dollar of debt
▶ Elliott had acquired an estimated $117M of deprecated Argentinian
bonds
▶ Elliott refused the restructuring plan and decided to sue Argentina
▶ US courts rules in favor of Elliott
▶ In 2012, Elliott requested and obtained the seizure of the Argentinian
military vessel, the Liberdad, with 250 crew members onboard
▶ Elliott even attempted to seize satellite contracts between Argentina
and SpaceX
▶ In 2016, Elliott and Argentina reached an agreement with Argentina
accepting to pay $2.4B to Elliott

Part 3.1.2. Rating agencies
How do you assess the riskiness of fixed-income securities?
Rating agencies provide riskiness ratings
They rate fixed-income securities based on their default risk
Which are the three main credit agencies?
How does their rating system work?

Part 3.1.2. Rating agencies
Source: https://prepnuggets.com/glossary/credit-ratings-agency/

Part 3.1.2. Problems with rating agencies
They performed very poorly during the 2007-2008 crisis

▶ Default probabilities were estimated with historical data that did not
take into account systemic risk
▶ They entities that pay for the services are the ones being rated
(conflicts of interest)
Their ratings can be used to compute bank capital ratios
Are these issues gone?
What about ESG ratings?

3.2. Equity securities
Part 3.2. Equity securities

Definition
Common stocks represent ownership shares in corporations
Commons stocks are also often referred to as equity securities or

equities
Concept:
▶ The term Common refers to the fact that each share entitles its owner
to one vote
▶ In contrast, non-common stocks may entitle their owner to more than
one vote
▶ Limited Liability: shareholders’ liability is limited to the money they
invested (no need to sell their house to pay back the companies’ debts)
▶ Infinite maturity: as long as the corporation exists
▶ Residual claim on benefits: shareholders have a claim on any remaining
benefits after all other claimants have been paid.
▶ Dividends: firms’ benefits can be reinvested or paid as cash dividends
Part 3.2. Corporate Governance and Voting

Corporations resemble democracies
▶ In parliamentary democracies:
⋆ Citizens elect representatives, Parliament Members
⋆ These Parliament Members select the executive body, the Government
▶ In corporations:
⋆ Shareholders elect representatives, Board Members
⋆ These Board Members select the executive body, the Management
▶ Direct democracies:
⋆ Corporations even resemble direct democracies as shareholders have the
right to submit proposals requesting the implementation of some sort
of reforms
Shareholder voting:
▶ In consequence, shareholders vote at corporation’s meetings to elect
board members and to approve a lot of matters related to auditing,
dividends, executive compensation, shareholder proposals, etc.
Part 3.2. Preferred Stocks
Preferred Stocks:
▶ Inbetween bond and equity

▶ Like a bond, it provides a specific fixed income every year
▶ Like equity, there is no obligation to pay dividends, instead dividends
cumulate and must be paid before common stockholders receive
dividends
▶ Preferred stocks do not convey voting rights

3. Derivatives
Part 3.3. Derivatives
Their value depends on the value of another asset, the underlying

asset
Common derivatives include:

▶ Options
▶ Futures
▶ Forwards
▶ Swaps
Read Chapter 2.5

Part 4. Stock and Bond Market Indices
(Ref. Chapter 2.4)

Part 4. Market indices

Definition
A Market Index is a basket of securities used to measure the evolution of a
specific subset of the market
Key feature:
▶ The ”price” of an index reflects the average changes of its constituents
Key roles:
▶ Market barometer: allows to track the performance of a specific
(sub-)market
▶ Market benchmark: allows to compare performances
▶ Underlying index: provides a basis for securities (derivatives) or funds
(e.g. index trackers)
Examples:
▶ Dow Jones Industrial Average
▶ S&P500
▶ HSI (Hang Seng Index)
▶ CSI 300
Part 4. Example: the S&P500 and the HSI

S&P500 in blue and HSI in red
Informational role of financial markets regarding the global macro

economy
We can easily observe the covid-related crashes as well as the recovery

Part 4. How to construct an index?
Are the assets listed on public markets?

▶ Yes:
⋆ Examples: listed stocks, bonds, or listed derivatives
⋆ Computation base: public prices
▶ No:
⋆ Examples: real estate, art, or some private equity funds
⋆ Computation base: much more difficult as transaction prices may not
be public
Which weighting scheme?

1 Price weighted
2 Value weighted
3 Equally weighted

Part 4.1. Weighting Schemes
Part 4.1.1. Price-weighted indices
Numerical example price-weighted index:
Stock Price in t Price in t + 1 Return

Firm A 100 110 +10%
Firm B 20 18 -10%
Index 60 64 +6.67%
Index Price in t: PI ,t = (PA,t + PB,t )/2

Index Price in t + 1: PI ,t+1 = (PA,t+1 + PB,t+1 )/2
PI ;t+1
Return of the index between t and t + 1: RI ;t,t+1 = PI ;t −1
Price-weighted indices give more weights to larger prices

Price-weighted indices deliver the same returns as equally-weighted

portfolio:

Firm A 100 110 +10%
Firm B 20 18 -10%
Portfolio 120 128 +6.67%
Example of price-weighted index:

▶ Dow Jones Industrial Average (Dow Jones)

Generalization to N securities:
Definition
PN
i=1 Pi,t
PI ,t =
N
PI ,t is the price of the index in t
Pi,t is the price of security i in t
N is the total number of securities in the index
Remark: the denominator N can be replaced by another value to take

into account stock splits or when firms are dropped or added to the
index

Part 4.1.2. Value-weighted indices

Numerical example value-weighted index:
Stock Shares Price Mkt.cap. Price Mkt.cap. Return

in t in t in t + 1 in t + 1
Firm A 1 100 100 110 110 +10%
Firm B 20 20 400 18 360 -10%
Index 100 500 94 470 -6.00%
Index Price in t: PI ,t = 100 (set arbitrarily)

Mkt.cap.t+1
Index Price in t + 1: PI ,t+1 = PI ,t × Mkt.cap.t
PI ;t+1
Return of the index between t and t + 1: RI ;t,t+1 = PI ;t −1
Value-weighted indices give more weights to larger market
capitalizations
Part 4.1.2. Value-weighted indices
Definition
PN
MCi,t+1
PI ,t+1 = PI ,t × Pi=1
N
i=1 MCi,t
PI ,t is the arbitrarily set price of the index at the initial period t

MCi,t is the market capitalization of firm i in t
PI ,t
Remark: the factor PN can be much more complex to take into
i=1 MCi,t
account when firms are dropped or added to the index
Most common weighting scheme. For example: S&P500, HSI, CSI
300

Part 4.1.3. Equally-weighted indices

Numerical example equally-weighted index:

Firm A 100 110 +10%
Firm B 20 18 -10%
Index 100 100 +0%
Return of the index between t and t + 1:

RA;t,t+1 + RB;t,t+1 10% − 10%
RI ;t,t+1 = =
2 2
Index Price in t: PI ,t = 100 (set arbitrarily)
Index Price in t + 1:
PI ,t+1 = PI ,t × (1 + RI ;t,t+1 ) = 100 × (1 + 0%)

Part 4.1.3. Equally-weighted indices
Definition
PN
i=1 Ri;t,t+1
RI ;t,t+1 =
N
PI ,t+1 = PI ,0 × (1 + RI ;0,1 ) × (1 + RI ;1,2 ) × ... × (1 + RI ;t,t+1 )
PI ,0 is the arbitrarily set price of the index at the initial period t

Ri;t,t+1 is the return on asset i from time t to t + 1
Equally-weighted indices deliver the same returns as a portfolio

strategy that invests equal dollar value in each security.

Part 4.2. Stock splits, dividends, composition changes
How to deal with stock splits or dividends or composition changes?

Composition changes:
▶ You need to adjust!
Stock splits:
▶ You need to adjust!
Dividends:
▶ Some indices report returns including dividends (total returns), others
don’t (price returns)
▶ Example of included dividends: DAX (Germany)
▶ Example of excluded dividends: CAC40 (France)
Read Chapter 2.4 of the reference book


Evolution of the CAC40 with and without dividends
CAC 40 GR: includes dividends

CAC 40: excludes dividends
Source: Google Finance
Part 4.3. Indices for non-listed asset
Part 4.3. Constructing indices for non-listed assets
Examples:
▶ Real estate, art, private equity funds
Much more difficult to compute:

▶ Prices may not be public
▶ Transactions can be very infrequent
▶ Assets may be very different from one another
Solutions:
▶ Hedonic regressions: take into account the characteristics of the assets
▶ Repeated sales: for example the Case-Shiller index

Part 4.3. Constructing indices for non-listed assets
The Case-Shiller index
Repeated sales index based on the single-family house prices of 20 US

cities
One can clearly observe the 2007-2008 real estate crash
Source: FRED St.Louis

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1. Introduction to the Course 2. Basic Knowledge in Financial Markets 3. Financial Asset Categories 4.

Investments and Portfolio Analysis

Dr. Maxime Couvert

University of Hong Kong

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 1 / 67

2. Basic Knowledge in Financial Markets

3. Financial Asset Categories

4. Stock and Bond Market Indices

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 2 / 67

Part 1. Teaching Assistants

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 3 / 67

Part 1. Assessment Methods

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 4 / 67

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 5 / 67

There will be 2 group assignments

Fill the group members in the ”Investment Competition” Excel sheet

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 6 / 67

Part 1. FINA2320 - Investment Competition

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 7 / 67

Part 1. FINA2320 - Investment Competition

FINA2320 Capital Management Ltd., one of the best hedge funds in

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 8 / 67

Part 1. FINA2320 - Investment Competition

Part 1. FINA2320 - Investment Competition

There is no grade for the investment competition

If you want to take it seriously... good... if you don’t... good too

But you have to participate because

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 10 / 67

Part 1. Artificial Intelligence Tools

However, if you do use AI tools,

You have to state it clearly:

▶ State which tool you used

▶ State whether you thought it was: useless, somehow useful, or very

Using AI will not be an excuse for wrong answers. So the risk of AI

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 11 / 67

Part 1. In-class participation

I will use Mentimeter for the first part of the semester

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 12 / 67

Part 1. New to 2023!!!

We will try to dedicate 5min at the beginning of each session to

That will require your active participation:

Investment Strategy Examples

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 13 / 67

Part 1. Other administrative matters

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 14 / 67

Investments, 13th Edition, Zvi Bodie, Alex Kane, and Alan J.

Part 1. Course Objectives

1 Gain a fundamental knowledge of investment strategies

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 16 / 67

Part 1. Course Content

Objective 1: Fundamental knowledge of investment strategies

Basic Knowledge in Financial Markets (Ref.: Chapters 1 and 2)

How to Trade Securities? (Ref.: Chapter 3)

Mutual Funds and Other Investment Companies (Ref.: Chapter 4)

Dr. Maxime Couvert (HKU) FINA2320 - Lecture 1 Fall, 2023 17 / 67

Part 1. Course Content

Objective 2: Understand equity portfolio management techniques

Portfolio Statistics (Ref.: Chapter 5)