Syllabus Booth

Booth School of Business University of Chicago
Bus 35000-81/82 Investments Spring 2009 773-834-4711 (voice) Professor Stavros Panageas Hyde Park Center 313 stavros.panageas@chicagobooth.edu (email)
Spring 2011
Course Description
This course is designed to provide a sound foundation for the fundamental concepts in investments. Students who master the course material will acquire the analytical tools and nancial theory necessary for making good investment decisions and understanding the paradigms by which nancial securities are valued. The course will prepare students for more advanced courses on the topics covered. This course is highly quantitative and relies heavily on analytical tools and economic theory developed throughout the course. Students should be comfortable with probability, statistics and regression analysis at the level of Business 41000. Use of a spreadsheet package such as Excel will be vital for the homework assignments, saving time and aiding in understanding the material. Some use of calculus and linear algebra will also be required.
Course Requirements and Grading

The course requirements are a Midterm exam, a Final exam, ve graded homework assignments, and a case write-up. Class participation will also aect your grade (positively or negatively!). Your course grade will be determined by the maximum of Methods A and B below: Method A Midterm Case Write-up Problem Sets Class Participation Final Method B 25% 5% 15% 5% 50% Case Write-ups Problem Sets Class Participation Final 5% 15% 5% 75%
In other words the midterm is optional. It can only help your grade. In the interests of diversication, I suggest that you take the midterm.
Homework and Case Assignments

Five homework assignments will be given, which consist of problems and several applications to real data. The latter are designed to apply techniques learned in the course to real data in a manner similar to what might be applied in practice. Keep in mind that exam questions will be similar to the assigned homework problems. In determining your nal grade for the homeworks, I will only count your best four problem sets. Note that the case write-up is separate from the homework assignments. I will provide details about the case write-up later. You may do the homework problems and cases in groups that are not to exceed four people. (Groups with more than four people will not receive credit.)
Review Sessions, Oce Hours and TA

Review Sessions and Oce Hours: Before class on Wednesday and Thursday evenings 5.15 to 6:00 pm. Location TBA Review sessions are optional . No new material will be covered. During these sessions we will answer questions and review previous material. Oce Hours: I will hold oce hours on Wednesdays from 1:45pm to 3:15pm in 313 of the Hyde Park Center. Students who have questions or want to review previous material are encouraged to come to my oce hours. If you would like to schedule an individual appointment for another time please feel free to call me or to send me email. TA: Jan Schneemeier, email: jan.schneemeier@googlemail.com. Jan is responsible for grading your assignments, so please feel free to contact him directly if you have any questions or concerns about the assignments.
Class Attendance
I expect you to attend the section for which you are registered. I do understand that sometimes work or interview schedules will mean that you will have to miss a class. In those circumstances you may attend an alternative section, but you must obtain my permission rst. Also you (and your group) will have to hand in your assignments with the class you are attending if that class meets earlier in the week than the class for which you are registered. Attendance at an alternative section should occur only once or twice per quarter.
Honor Code
Students in this course are required to adhere to the standards of conduct in the Honor Code and Standards of Scholarship. Each student shall sign the following pledge on each exam: I pledge my honor that I have not violated the Honor Code during this examination. You will be allowed to work on the problem sets and cases in groups of up to four people. You should discuss the problems and cases only with members of your group. You should not discuss the problems and cases with other members of this or any other class, or with former BUS35000 students. In the future, you should not discuss the problems and cases with students then taking BUS35000.
Readings for the Course

Texts Required text: Bodie, Zvi, Alex Kane, and Alan Marcus, Investments, Irwin, 9th Edition. Course Packet The course packet contains some of the leading articles from practitioner and academic journals discussing the topics covered in class. Some of the articles are challenging and are geared toward a slightly more advanced level. I will assign certain portions of these articles that I feel are relevant to the topics discussed in class, and will not hold you responsible for the most dicult and advanced material. In addition, I have included some optional readings, which you are not formally responsible for, but will interest the advanced student pursuing a career in nance. The course packet also contains the Harvard cases we will use during the quarter. Lecture Slides and Handouts Lecture slides will be posted in advance on the class web page. You will need to print these out and bring them to class with you. The lectures slides provide an outline of the course discussion and some detail on the topics covered. They are not a substitute for attending class since the class discussion will add value to the notes and texts. Simply reviewing the lecture slides and text material will not be sucient to succeed in the course.
Course Outline This an approximate schedule of topics that will be covered. You should read the corresponding material in the text prior to the lecture. BKM refers to the book by Bodie, Kane and Marcus. Unless otherwise stated, the listed articles are included in the case packet. Week 1 Topics: Course Outline and Introduction, Overview of Financial Markets, Risk and Return, Asset Pricing and the Present Value Formula Required Readings: BKM Chapters 1-5. Week 2 Topics: Fixed Income Required Readings: BKM Chapters 14-16. Week 3 Problem Set #1 Due at the beginning of class Topics: Fixed Income Continued, Introduction to Asset Allocation Required Readings: BKM Chapters 6-7. Week 4 Problem Set #2 Due at the beginning of class Topics: Portfolio Theory and Mean-Variance Analysis, Practical Asset Allocation Required Readings: Harvard Case: Harvard Management Company. BKM Chapter 8. Black and Litterman Global Asset Allocation with Equities, Bonds, and Currencies (handout this is also required below). Week 5 Problem Set #3 Due at the beginning of class Topics: The Capital Asset Pricing Model, Multifactor Models and the Arbitrage Pricing Theory (APT) Required Readings: BKM Chapter 9. Fama and French, The Cross-Section of Expected Stock Returns (Read the introduction and conclusion). BKM Chapters 10 and 11.
Week 6 Midterm Exam (First 1 1/2 hours of class) Topics: Applications of Asset Pricing Models Required Readings: Black and Litterman Global Asset Allocation with Equities, Bonds, and Currencies (handout). Week 7 Topics: Market Eciency and Anomalies, The Money Management Industry and Performance Evaluation Required Readings: Harvard Case: Strategic Capital Management. BKM, Chapter 12. Malkiel Ecient Market Hypothesis. Thaler Giving Markets a Human Dimension. Moskowitz and Grindblatt Do Industries Explain Momentum. Frazzini The Disposition Eect and Underreaction to News. Optional Readings: DeBondt and Thaler Anomalies: A Mean-Reverting Walk Down Wall Street. Thaler Anomalies: The January Eect. Lakonishok et. al., Contrarian Investment, Extrapolation and Risk. Jegadeesh and Titman Returns to Buying Winners and Selling Losers: Implications for Stock Market Eciency. Carhart On Persistence of Mutual Fund Performance. Fama and French Luck versus Skill in the Cross-Section of Mutual Fund Returns. Week 8 Case Write-Up for DFA Due at the end of class Topics: DFA Case, Forwards and Futures, Introduction to Options Required Readings: BKM Chapter 20, 22, 23 Week 9 Problem Set #4 due at beginning of class Topics: Derivative Security Valuation Required Readings: BKM Chapter 21 Optional Readings: Schwartz Options and Portfolio Insurance
Week 10 Problem Set #5 Due at the beginning of class Topics: International Investment, Risk Management Required Readings: BKM Chapters 25. Optional Readings: Neuberger Metallgesellschaft: A Hedge Too Far Week 11 FINAL EXAM

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Booth School of Business University of Chicago

Course Requirements and Grading

Homework and Case Assignments

Review Sessions, Oce Hours and TA

Readings for the Course

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