Syllabus Fina6216 Final

SOUTHERN METHODIST UNIVERSITY
Edwin L. Cox School of Business

FINA 6216
PORTFOLIO THEORY AND ASSET PRICING
Professor Kumar Venkataraman
Fall 2015 Mod. A
Office: 330A Fincher
Phone: 214-768-7005
Early Section: Tuesdays 2:00pm-4:50pm (Crow 280)
E-mail: [email protected]
Late Section: Tuesdays 6:30pm-9:20pm (Crow 280)
Office Hours: Tuesdays 5:00pm-6:00pm and by appointment.
Course Objective
The objective of this course is to provide a lasting conceptual framework in which to view financial markets and
to examine new ideas, concepts, and instruments as they evolve in the future. This course covers a great deal of
advanced material. Students are expected to be comfortable with probability, statistics, and regression analysis,
and with a spreadsheet package such as Excel. Some use of calculus and linear algebra will also be required.
After completing the course, you should be able to:
1. understand the importance of asset correlation in portfolio construction,
2. understand how assets are priced in financial markets,
3. identify signals of stock mispricing, and
4. understand practical considerations in constructing portfolios.
Course Description
This is a course in the theory and applications of risk and return in capital markets. This course will present the
paradigm by which financial securities are valued and provide a framework for making investment decisions.
Topics include the measurement of risk, diversification, optimal portfolio selection, asset pricing models, and
market efficiency, and empirical evidence as it pertains to these theories and practices.
Since the course emphasizes fundamental concepts underlying modern portfolio theory, the approach will be
analytical and rigorous. The course employs assignments, classroom lectures and discussions, and numerical
problems to convey the material. Some work will be done individually and some in groups. Each student is
expected to contribute regularly to classroom discussion. This is particularly true when we discuss assignments,
but also during lectures and general discussions.
The material for this course needs to be absorbed consistently. As the course progresses, students should work
on the suggested homework problems to prepare for cases and exams. All these problems are essential for a full
understanding of the material covered in the course. You should find it helpful to read the assigned readings
before we cover the material in class; in general the difficulty of the material covered in class will be at least that
of the textbook.
Prerequisite
The prerequisite for this class is FINA 6201.
Course Material
1. Required course text
Bodie, Kane and Marcus (BKM), Investments, Tenth Edition, McGraw-Hill Irwin publishers.
You are welcome to use the Ninth Edition, but if you do, please note that you are
responsible for reconciling the assigned readings and problems.
To purchase Tenth Edition eBook with 2-year access directly from McGrawHill Connect:
http://connect.mheducation.com/class/k-venkataraman-library-course
2. Financial calculator
Each student is required to bring a calculator to all classes and the final exam. Any calculator
that has an xy button will do. Because of the variety of calculators used, students will be
expected to learn how to use their calculators on their own.
3. Class presentation slides and Excel spreadsheets will be posted on the course web page.
Please note that the material do not comprise self-contained lectures. Rather, the intent is to
reduce the amount of rote copying so that more time can be devoted class discussion.
4. Selected articles from academic finance journals and periodicals (WSJ, Economist, etc.) will be
either handed out in class or linked directly to the web page.
5. Case assignments (see below)
6. Suggested textbook problems will be posted on the course web page.
The text problems will not be collected or graded. You are responsible for solving and
understanding these problems since they will help prepare you for the cases and exams. Group
discussion is highly encouraged for these problems.
Course Web Page
Various course material will be distributed through Canvas: https://smucox.instructure.com/. Please contact
me if you do not have access to our course on Canvas.
Student Assessment
The course grade will be based on the following:
Case 0 (HBS): Beta Management (discussed on Week 2 Sept 1) #
Quiz (Week 3 Sept 8)
Case 1: Asset Allocation (due on Week 5 Sept 22)
Case 2 (HBS): BP Amoco (due on Week 7 Oct 6)
Class Participation / Citizenship
Final Exam (Week 8 - Oct 13)
Total
0.00 %
15.00 %
15.00 %
15.00 %
5.00 %
50.00 %
100.00 %
# Case 0: Please prepare your answers for classroom discussions but you are NOT required to submit a case write-up.
Letter grades will be assigned based on the student distribution of the courses total scores. The grade cutoff
points are at the professors discretion and will be adjusted based on the classs overall performance. My
upward adjustment will be limited by the Finance Departments guideline on the maximum numbers of As for
Finance elective courses. Historically, the class GPA is 3.4.
Cases
Students should work in teams of three or four participants on the three cases (individual submissions are not
allowed). Your objective is to answer the questions posted for each case on the webpage. Each team member
will receive the same grade and you only need to turn in one write-up per team. All students must come fully
prepared to present their solution to the rest of the class. Assignment write-ups should be mailed to me.
Grading will be based on the accuracy of the data analysis (65%) and on exposition and presentation of findings
(35%). The write-ups should not exceed five double-spaced pages of text (not including figures and exhibits).
The intent of the page limitation is to enforce careful writing. Your response should be consistent with and
supported by your main analysis.
Class Participation and Citizenship

I will observe student participation in the course and reward those students who make a substantial effort. My
evaluation will be based on how well you have participated in class, looking at the quality, not the quantity, of
your participation. Points awarded are at my discretion and are based on my opinion of your efforts and your
contribution to class discussions. These points are not automatically given, but must be earned. They are not
subject to negotiation.
FINA 6216 Fall 2015 Syllabus Page 2 of 4
Class Policies
1.
SMU Honor Code

This course is fully governed by the SMU Honor Code. You will be allowed to work on the
cases in teams of three or four people. You should discuss the cases only with members of your
group. You should not discuss the cases with other members of this or any other class, or with
former FINA6216 students. In the future, you should not discuss the cases with students then
taking FINA6216.
2. Accommodations Provided for by University Policies

Accommodations for a disability, religious observance and extracurricular activities follow
University Policy as described below. Please meet me at the beginning of the semester to
discuss any potential issues.
Disability Accommodations: Students who need academic accommodations for a
disability must first register with Disability Accommodations & Success Strategies
(DASS) to verify the disability and to establish eligibility for accommodations. Students
may call 214-768-1470 or visit http://www.smu.edu/Provost/ALEC/DASS to begin
the process. Once registered, students should then schedule an appointment with the
professor as early in the semester as possible, present a DASS Accommodation Letter,
and make appropriate arrangements. Please note that accommodations are not
retroactive and require advance notice to implement.
Religious Observance: Religiously observant students wishing to be absent on
holidays that require missing class should notify their professors in writing at the
beginning of the semester, and should discuss with them, in advance, acceptable ways
of making up any work missed because of the absence. (See University Policy No. 1.9.)
Excused Absences for University Extracurricular Activities: Students participating
in an officially sanctioned, scheduled University extracurricular activity should be given
the opportunity to make up class assignments or other graded assignments missed as a
result of their participation. It is the responsibility of the student to make arrangements
with the instructor prior to any missed scheduled examination or other missed
assignment for making up the work.
3. Attendance
Our class discussions will go beyond the scope of the textbook for most topics. Therefore, it is
important for you to attend class. You are responsible for all announcements made in class. If
you are unable to attend a particular class, please notify the professor of your absence prior to
that class. Failure to notify the professor of absence, or missing more than one session during
the course, might result in a failing grade. For an excused absence, the professor in
consultation with the student will determine the make-up for missed work.
4. Laptop, PDAs, Phones
Students are bound by the following policies concerning Laptops and cell-phones: they need to be shut off or set to silent mode during class
session. No telephone calls, text messages, or e-mails during class!
Violation of the policies can lower the class citizenship component of course grade.
Tentative Course Schedule
This is an approximate schedule of topics that will be covered. The assigned readings will provide the framework for
classroom discussions. Please read them prior to the corresponding lecture.
Week
Date
Zero
One
Aug 25
Topic
Reading
Review of Applications of Statistics in

Finance
BKM, Chapter 7, Appendix B on Review of Portfolio

Statistics
BKM, Chapter 5: Section 5.6, 5.7
Historical Return and Risk
BKM, Chapter 5: Section 5.3, 5.4, 5.5, 5.8

Spreadsheet: Risk&Return.xls.
Two
Sept 1
Portfolio Theory
** Discussion of Case 0**
BKM, Chapter 8: Section 8.2, 8.3.
BKM, Chapter 6 (ignore Appendix).

Spreadsheet: CAL_OneRisky.xls
BKM, Chapter 7: Section 7.1, 7.2, 7.3, 7.4.
Spreadsheet: CAL_TwoRisky.xls
WSJ Article, Time for Investings Four-Letter Word.
Three
Four
Sept
8
Asset Pricing Models
Sept
15
Market Efficiency and Behavioral

Finance
BKM, Chapter 9
***Quiz ***
BKM, Chapter 11: Section 11.1, 11.2, 11.3, 11.4.
BKM, Chapter 12: Section 12.1
BKM, Chapter 13: Section 13.3
Article, Super Investors of Graham Doddsville
FT Article, The Price May Not Be Right.
Five
Sept
22
Asset Allocation: Practical Consideration Cambridge Report

** Discussion of Case I **
JP Morgan Asset Allocation Software (in-class)
Six
Sept
29
Option and Futures
BKM, Chapter 20: Section 20.1, 20.2, 20.4

Seven
Oct
6
Fund Management
BKM, Chapter 4: Section 4.3, 4.4, 4.5, 4.6, 4.7.

BKM, Chapter 11, Section 11.5.
Eight
Oct
13
** Discussion of Case 2 **
Final Exam
(During class time in class)
Sharpe, Indexed Investing: A Prosaic Way

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SOUTHERN METHODIST UNIVERSITY

Edwin L. Cox School of Business

Class Participation and Citizenship

FINA 6216 Fall 2015 Syllabus Page 2 of 4

SMU Honor Code

2. Accommodations Provided for by University Policies

FINA 6216 Fall 2015 Syllabus Page 3 of 4

Tentative Course Schedule

Review of Applications of Statistics in

BKM, Chapter 7, Appendix B on Review of Portfolio

Historical Return and Risk

BKM, Chapter 5: Section 5.3, 5.4, 5.5, 5.8

BKM, Chapter 6 (ignore Appendix).

Asset Pricing Models

Market Efficiency and Behavioral

Asset Allocation: Practical Consideration Cambridge Report

Option and Futures

BKM, Chapter 20: Section 20.1, 20.2, 20.4

BKM, Chapter 4: Section 4.3, 4.4, 4.5, 4.6, 4.7.

FINA 6216 Fall 2015 Syllabus Page 4 of 4

Sharpe, Indexed Investing: A Prosaic Way

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