LANCASTER UNIVERSITY

Management School
Department of Accounting and Finance
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AcF602: Advanced Investment Management

Lent Term 2007
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Course Objective

This course develops both theoretical and practical knowledge in the area of asset
management. Although not intended to track the Chartered Financial Analysts (CFA)
syllabus (AIMR do not offer exemptions), it should prove useful to those intending to
take this qualification or enter the Investment Management industry as a portfolio
manager or security analyst.

Learning Outcomes

By the end of this course students should:-

Understand theory relevant to determining investment risk and return

Have built a practical risk model tool using real investment data from either a
country or an industry sector
Have ability to assess investment managers performance critically using a
range of diagnostics.

Course Readings

Investments, Bodie Z., Kane A. and Marcus A. (6e), McGraw Hill, 007-123820-4.

Investment Analysis and Portfolio Management (7e)

Reilly F. and Brown K., Thomson South-Western, 0-324-17173-0.

Text Chapters
Bodie, Kane, Marcus (5), 6-11, (12), 13, (17-19), 24-27.
Reilly, Brown (1), 6-9, (10-15), 17, 25-26.

(The second text in particular is mentioned extensively in the CFA syllabus). It is

recommended that student complete all the readings listed in both texts (which also
have material beneficial to takers of AcF 606).
Academic Papers

Students will also be provided with copies of the following papers:-

Fama E.F. and French K.R., 1992, The cross section of expected stock returns,
Journal of Finance, 47(2), 427-465.

Fama E.F. and French K.R., 1993, Common risk factors in the returns on stocks and
bonds, Journal of Financial Economics, 33(1), 3-56.

Kothari, S., Shanken J. and Sloan R., (1995), Another look at the cross section of
expected returns, Journal of Finance, 50(1) 185-224.

Lakonishok J., Shleifer A. and Vishny R.W., (1994), Contrarian investment,

extrapolation and risk, Journal of Finance, 49(5), 1541-1581.

Course Administration

The course will be delivered by three tutors; Kevin Aretz (KA), Jason MacQueen
(Alpha Strategies - JM) and Mark Shackleton (MS - the course director). It will
comprise fifteen, 90 minute sessions, mostly on Wednesdays but with one and a half
full days on Monday/Tuesday sessions (see detailed schedule below).

Course Assessment

Coursework (individual) 25%

This will involve producing a risk model either for a country (with a small market) or
an industry (within a larger countrys market). We will endeavour to assist provision
of unique datasets for students (depending on their number). Grading will be based on
data handling issues and originality as well as application of theory. The CW should
provide a useful document in persuading employers of your transferable skills.

Examination 75%

There will be an exam with three questions from four, this will test your intuition and
understanding of the theory in the course as well as your ability to work with the
analysis of investment returns.
 Course Outline: Dates and Topics

Date Schedule of lecturers and topics

1. 24/1 MS Market regressions, covariance, correlation, slope, intercept

2. 24/1 MS Markowitz portfolio theory, stock indices (and sub-indices)
3. 31/1 MS CAPM theory and tests, market efficiency, two stage estimation
4. 31/1 MS Other (multi) factor models e.g. APT (higher co-moment)
5. 7/2 MS Performance measurement and attribution
6. 7/2 KA Data workshop; portfolio sorting methods
7. 14/2 KA Empirical tests of asset pricing models
8. 19/2 JM The structure of risk models; Customised hybrid risk models
9. 19/2 JM The reference day effect in risk analysis
10. 19/2 JM Risk decomposition and risk budgeting
11. 20/2 JM The use and abuse of tracking error
12. 20/2 JM The fund management industry; passive v. active asset allocation
13. 28/2 KA Fama French three factor model and style analysis
14. 7/3 KA International diversification
15. 14/3 KA (possibly alternative investments and Hedge Funds); Course review.