Checking date: 04/04/2022

Course: 2022/2023

Study: Master in Finance (261)

Coordinating teacher: MORENO MUÑOZ, JESUS DAVID

Department assigned to the subject: Business Administration Department

Type: Compulsory
ECTS Credits: 6.0 ECTS


Requirements (Subjects that are assumed to be known)
The course presumes some exposure to undergraduate finance, economics, statistics and econometrics. In addition, knowledge of Matlab programming is required to do one of the practical exercises. Basic knowledge in Matlab and Excel are required.
This course provides a rigorous panoramic analysis of the interplay between portfolio selection, asset pricing theory, and the empirical evidence. After a traditional discussion on risk aversion and mean-variance portfolio choice, we present the main asset pricing models (including the CAPM, multi-factor asset pricing models and Conditional Asset Pricing Models). A complete description of Investment Companies (mutual funds, hedge funds, among others) are presented, and the most relevant performance measures. Students will learn how to evaluate a portfolio or a portfolio manager using both the traditional and newest performance measures. Finally, the most relevant problems of the mean-variance model are presented and potential improvements of this traditional way to manage a portfolio. This course combine both theoretical foundations and practical exercises using real data from financial markets or mutual funds industry. Professors of the Course: 1- David Moreno (Associate Professor Universidad Carlos III, PhD)
Skills and learning outcomes
Description of contents: programme
1. Mean-Variance Model - Descriptive statistics of asset returns - Expected return and risk on a portfolio - Diversification - The Markowtiz Model without risk-free asset - The Markowtiz Model with risk-free asset 2. Asset Pricing Models - CAPM - Fundamentals of APT - Multifactorial Asset Pricing Models - Fama and French Model (1993): Size and Book-to-market factors - Carhart Model (1997): The momentum factor - Using Investment and Profitability factors - The Quality factor - Conditional Asset Pricing Models 3. Investment Companies -Introduction to Investment Companies -Description of main ICs (Mutual Funds, ETF, Closed-Funds) -Pricing Mutual Funds 4. Performance Measures and Mutual Funds Evaluation -Traditional Performance Measures -Performance measures based on APT -Conditional Performance Evaluation -Performance measures based on Portfolio Holdings -Market Timing Ability -Other Performance Measures used by practitioners. -Performance Measurement of Hedge Funds 4. Drawbacks of Mean-Variance model and potential improvements -Main problems of Mean-Variance in practice -Resampled Efficient Frontier (Michaud, 1998) -Robust Portfolio Optimization and Bayesian Models (Shrinkage estimators) -Non-normal return distributions: Optimizing Downside Risk -Back and Littermann Model 5. Other Topics in Portfolio Management -Behavioral Finance -Value Investing Philosophy -Technical Analysis -Non-traditional assets
Learning activities and methodology
The theoretical contents are presented using Power Point slides. In all classes empirical exercises will be solved, most of them using real data, with the aim of a practical application and visualization of theoretical concepts. The students will work in teams and using computers. The software used will be Excel and Matlab. Practical application on Portfolio Choice: With real data about individual asset returns, the student will have to obtain: -The mean-variance efficient frontier without riskless asset. -The minimum variance portfolio. -The tangent portfolio and the efficient frontier with a riskless asset. -The optimal investor portfolio for different levels of risk aversion. -Resampling Efficient Frontier -Optimar asset allocation under Black-Letterman model Practical application on Asset Pricing: With real US market data, students must have to discuss: -Testing the CAPM -Estimating the Multifactorial model of Carhart -The performance of mutual funds using Jensen's alpha -The performance of alternative multifactor asset pricing models.
Assessment System
  • % end-of-term-examination 55
  • % of continuous assessment (assigments, laboratory, practicals...) 45
Basic Bibliography
  • Bernd R. Fischer, Russ Wermers. Performance Evaluation and Atribution of Security Portfolios. Academic Press. 2013
  • Bodie, Kane and Marcus. Investments. McGraw Hill. 2012

The course syllabus may change due academic events or other reasons.