Portfolio Management

Syllabus
1. Course outline
The course presented examines the theoretical basis and practical approach to the
management of stocks and fixed income investment portfolios.
The course objective is to acquaint students with the theoretical foundation of modern
portfolio theory, the major groups of investors and their investment objectives and
constraints, and to master practical skills in investment management, forming capital market
expectations and forecasting markets activity to justify major investment portfolio
management strategy for equity and fixed-income instruments.
A distinctive feature of the course is to focus on practical issues of managing the
investment portfolio, ground on the results of recent academic research in the field of
portfolio management.
It is expected to have practical classes with Thomson-Reuters Eikon information
terminal.
As a result of the course, students will know the basic theoretical foundations of
portfolio theory, understand the investment process scope and stages, be able to form
market expectations and build strategic asset allocation, select the optimal investment
strategy.

2. Syllabus
I. The investment process, milestones portfolio management
• Planning
• Implementation
• Monitoring and rebalancing
II. Investment objectives and constraints of the different groups of investors
• Private investors
• Pension funds
• Insurance companies
• Foundations and endowments
• Banks
III. Assessment of market expectations
• The analytical process
• Limitations of economic data and analysis methods
• Psychological Traps
• Basic model group
• Economic analysis and market forecasts
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IV. Strategic asset allocation
• The importance of asset allocation
• Asset and Liability Management (ALM)
• Financial Psychology
• Selection of asset classes
• Optimization
V. Portfolio management, fixed income
• Bond Portfolio Management Strategies
• Active and passive portfolio management
• Sources of income from fixed-income instruments
• Investing in foreign bond markets
VI. Managing a portfolio of stocks
• Active and passive management of a portfolio of stocks
• Equity Indices
• Tools passive investing
• Investment Styles
• Analysis of investment styles based on portfolio and income
• A market-neutral investment
3. Prerequisites
Effective development of the course involves the students' understanding of the
foundations of portfolio theory, the characteristics of the financial instruments, the
understanding of investment risk, return, diversification effects.
It is assumed that students have already mastered the following courses:
• Corporate Finance
• Analysis of the securities
• Financial Mathematics

4. Forms of control
Control of knowledge and evaluation of students is based on a standard 10-point scale
adopted in the HSE. The final assessment of the test consists of three components:
• The total activity in the classroom and in the audience of independent work,
• Intermediate results of a written test,
• Final practical case.
The final assessment of the results of the three components formed with the following
weights:
• Current activity of 15%
• Intermediate written test 15%
• The final practical work 70%
Intermediate written test is conducted in the format of multiple choice.
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The final practical case is an independent preparation of the investment declaration
and strategic asset allocation of the portfolio of a private investor on the basis of historical
data obtained in the practical class in Thomson-Reuters with Eikon terminal.
Investment declaration must include:
• Setting investment goals and constrains,
• Estimates of market expectations,
• Portfolio optimization,
• Preparing client presentations.
5. References and readings
1. John L. Maginn, CFA (Editor), Donald L. Tuttle, CFA (Editor), Dennis W.
McLeavey, CFA (Editor), Jerald E. Pinto, CFA (Editor). Managing Investment
Portfolios: A Dynamic Process. 3rd Edition. April 2007.
2. Dan Nevins. «Goals-based Investing: Integrating Traditional and Behavioral
Finance». By SEI, October 2003.
3. Hammond, John, Ralph Keeney, and Howard Raiffa. 1998. «The Hidden Traps in
Decision Making.» Harvard Business Review. Vol. 76, No. 5: 47–58.
4. Bekaert, Geert, Robert Hodrick, and David Marshall. 2001. «Peso Problem
Explanations for Term Structure Anomalies.» Journal of Monetary Economics. Vol.
48, No. 2: 241–270.
5. Goetzmann, William, and Philippe Jorion. 1999. «Re-Emerging Markets.» Journal of
Financial and Quantitative Analysis. Vol. 34, No. 1: 1–32.
6. Dimson, Elroy, Paul Marsh, and Mike Staunton. 2002. Triumphs of the Optimists:
101 Years of Global Investment Returns. Princeton, NJ: Princeton University Press.
7. Dimson, Elroy, Paul Marsh, and Mike Staunton. 2006. Global Investment Returns
Yearbook 2006. ABN-AMRO.
8. Kurz, Mordecai, Hehui Jin, and Maurizio Motolese. 2005. «Determinants of Stock
Market Volatility and Risk Premia.» Annals of Finance. Vo1.1, No. 2: 109–147.
9. Grinold, Richard, and Kenneth Kroner. 2002. «The Equity Risk Premium.»
Investment Insights from Barclays Global Investors. Vol. 5, No. 3.
10. Black, Fischer, and Robert Litterman. 1991. «Asset Allocation: Combining Investor
Views with Market Equilibrium.» Journal of Fixed Income. Vol. 1, No. 2: 7–18.
11. Black, Fischer, and Robert Litterman. 1992. «Global Portfolio Optimization. Charles
D. Ellis «The Loser’s Game.» The Financial Analysts Journal, Vol. 31, No. 4,
July/August 1975, 19-26. New York: Financial Analysts Federation.
12. Charles D. Ellis «The Winner's Game. Making your own plan is often quite
rewarding.»
13. Sharpe, William. 1991. «The Arithmetic of Active Management.» Financial Analysts
Journal. Vol. 47, No. 1: 7–9.
14. Daniel, Kent, Mark Grinblatt, Sheridan Titman, and Russ Wermers. 1997.
«Measuring Mutual Fund Performance With Characteristic-Based Benchmarks.»
Journal of Finance. Vol. 52, No. 3:1035 – 1058.
15. Elton, Edwin, Martin Gruber, and Jeffrey Busse. 2004. «Are Investors Rational?
Choices Among Index Funds.» Journal of Finance. Vol. 59, No. 1: 261–288.
16. Sharpe, William. 1988. «Determining a Fund’s Effective Asset Mix.» Investment
Management Review. Vol. 2, No. 6: 59–69.
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17. Sharpe, William. 1992. «Asset Allocation, Management Style and Performance
Measurement.» Journal of Portfolio Management. Vol. 18, No. 2: 7–19.
18. Charles D. Ellis «The Loser’s Game.» The Financial Analysts Journal, Vol. 31, No.
4, July/August 1975, 19-26. New York: Financial Analysts Federation.
19. Charles D. Ellis «The Winner's Game. Making your own plan is often quite
rewarding.»
20. Sharpe, William. 1991. «The Arithmetic of Active Management.» Financial Analysts
Journal. Vol. 47, No. 1: 7–9.
21. Daniel, Kent, Mark Grinblatt, Sheridan Titman, and Russ Wermers. 1997.
«Measuring Mutual Fund Performance With Characteristic-Based Benchmarks.»
Journal of Finance. Vol. 52, No. 3:1035 – 1058.
22. Elton, Edwin, Martin Gruber, and Jeffrey Busse. 2004. «Are Investors Rational?
Choices Among Index Funds.» Journal of Finance. Vol. 59, No. 1: 261–288.
23. Sharpe, William. 1988. «Determining a Fund’s Effective Asset Mix.» Investment
Management Review. Vol. 2, No. 6: 59–69.
24. Sharpe, William. 1992. «Asset Allocation, Management Style and Performance
Measurement.» Journal of Portfolio Management. Vol. 18, No. 2: 7–19.
25. Financial Analysts Journal. Vol. 48, No. 5: 28–43
26. Tversky, Amos. 1990. «The Psychology of Risk.» Quantifying the Market Risk
Premium Phenomenon for Investment Decision-Making. Charlottesville, VA: AIMR.
27. Brunel, Jean. 2002. Integrated Wealth Management: The New Direction for Portfolio
Managers. New York: Institutional Investor Books.
28. Volpert, Kenneth. 2000. «Managing Indexed and Enhanced Indexed Bond
Portfolios.» Fixed Income Readings for the Chartered Financial Analyst Program.
New Hope, PA: Frank J. Fabozzi Associates.
29. Fong, H. Gifford and Oldrich Vasicek. 1984. «A Risk Minimizing Strategy for
Portfolio Immunization.» Journal of Finance. Vol. 39, No. 9: 1541–1546.
30. Charles D. Ellis «The Loser’s Game.» The Financial Analysts Journal, Vol. 31, No.
4, July/August 1975, 19-26. New York: Financial Analysts Federation.
31. Charles D. Ellis «The Winner's Game. Making your own plan is often quite
rewarding.»
32. Sharpe, William. 1991. «The Arithmetic of Active Management.» Financial
Analysts Journal. Vol. 47, No. 1: 7–9.
33. Daniel, Kent, Mark Grinblatt, Sheridan Titman, and Russ Wermers. 1997.
«Measuring Mutual Fund Performance With Characteristic-Based Benchmarks».
Journal of Finance. Vol. 52, No. 3:1035 – 1058.
34. Elton, Edwin, Martin Gruber, and Jeffrey Busse. 2004. «Are Investors Rational?
Choices Among Index Funds.» Journal of Finance. Vol. 59, No. 1: 261–288.
35. Sharpe, William. 1988. «Determining a Fund’s Effective Asset Mix.» Investment
Management Review. Vol. 2, No. 6: 59–69.
36. Sharpe, William. 1992. «Asset Allocation, Management Style and Performance
Measurement.» Journal of Portfolio Management. Vol. 18, No. 2: 7–19.