This course will provide students with an understanding of the theory and practice of investment decision making. The course is divided into three modules: asset allocation, manager selection, and market frictions. The first module examines the decision of how to allocate a portfolio across different asset classes (e.g., stocks, bonds, real estate). Using the tools developed in modern portfolio theory, students will examine the trade-off between risk and return, the optimization of the risk-return trade-off for a portfolio, and the role of forecasting expected returns in designing an optimal portfolio. The second module explores the process of selecting portfolio managers for the different asset classes included in the portfolio. Students will use the CAPM and multifactor performance models to analyze manager performance and select the best managers. The third module examines market frictions that impact performance and consequently, should be considered in the asset allocation and manager selection decisions. These frictions include manager incentives and risk taking, market liquidity, trading costs, and taxes. While the course is designed for students whose career interests lie in the field of investment management, the topics covered and tools developed in the course will be useful for personal investment as well. Valuation in Financial Markets is a prerequisite for this course.


Academic course objectives:


         Teach students a framework for assessing the risk and corresponding return for investments in equities and fixed-income securities

         Allow students to confront a variety of challenging investment issues that require them to identify acceptable alternatives, assess the opportunities and risks; make decisions; and defend those decisions

         Provide students whose career interests lie in the field of investment management and research with a solid foundation for pursuing this goal