ARIZONA STATE UNIVERSITY

W.P CAREY SCHOOL OF BUSINESS

Investment Fundamentals and Portfolio Management

Spring 2011 Rajnish Mehra

rajnish.mehra@asu.edu
http://www.academicwebpages.com/preview/mehra/

Complex problem solving requires abstraction from the many details that clutter
untrained thought processes. The practice of abstraction itself is an extremely
valuable skill. Perhaps no single attribute better distinguishes top management than
their ability to "see through" details to a feasible solution. The rationale of this course
is to provide an analytical paradigm to evaluate financial theory in the light of
available empirical evidence, as well as to build intuition and clarity of thought. It
provides an introduction to the principles of security valuation, portfolio theory and
asset pricing models. The course is rigorous, quantitative and challenging. Student
familiarity with statistics, calculus, econometrics and computing techniques is
assumed.

Materials

I. Required Texts:

(i) Bodie, Kane, and Marcus, Investments, 9th Edition (2010).

McGraw-Hill / Irwin.

(ii) Solutions Manual to accompany the above text.

II. Other Required Readings:

FIN 591 Bulk Pack.

Evaluation

You are expected to read the assigned material before class. Lectures supplement
the text and explicate the more difficult material.

Grading is based on a midterm, a final and homework assignments. The

breakdown is as follows:

Homework: 20% of course grade

Midterm: 30% of course grade
Final: 50% of course grade

If your performance on the final is better than on the midterm, the

final will count for 80% of the course grade.

Late Homework will not be accepted. You are encouraged to work in groups
of up to four students. Please submit one solution per group.

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 Course Outline and Reading List

BKM Bodie, Kane & Marcus

Background Material

Module Zero
Summary of What You Need to Know Before the First Lecture
James Greenleaf, Ruth Foster and Robert Prinsky,
Understanding the Financial Data in The Wall Street Journal: A User’s Guide
Pindyck & Rubinfeld, Elementary Statistics, A Review

BKM Appendix B

SATURDAY February 26 2011

First Half

Diversification and Portfolio Theory

Module 1
An Introduction to Risk and Return
Black, Implications of The Random Walk Hypothesis for Portfolio Management
Mehra, Welcome to Bull Country

BKM, Chapters 5, 6 and 7

Second Half

The Capital Asset Pricing Model

Module 2
Notes on Diversification, Portfolio Selection and the CAPM
Mullins, Does the Capital Asset Pricing Model Work?

BKM, Chapter 9

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SATURDAY March 12 2011

First Third

The Capital Asset Pricing Model (Continued)

Module 2
Notes on Diversification, Portfolio Selection and the CAPM
Mullins, Does the Capital Asset Pricing Model Work?

BKM, Chapter 9

Second Third
Empirical Issues and the CAPM
Module 3

Notes On Empirical Issues and the CAPM

Case: Comsat

Final Third

Capital Budgeting Under Uncertainty

Module 4
Capital Budgeting Under Uncertainty

TUESDAY March 15 2011

First Half
Practical Asset Allocation
Module 5
Practical Asset Allocation
Case: Harvard Management Company
Davis and Mehra, Stocks and Bonds in the Portfolio Lifecycle

Second Half

Midterm Review

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THURSDAY March 17 2011

First Half

Midterm Review

Second Half

Midterm Exam

SATURDAY March 19 2011

First Half
Arbitrage Pricing Theory
Module 6
Arbitrage Pricing Theory

BKM, Chapter 10

Second Half

Efficient Capital Markets/Market Anomalies

Module 7
Market Efficiency
Thaler, Anomalies: Seasonal Movements in Security Prices II: Weekend, Holiday,
Turn of The Month, and Intraday Effects
Siegel & Thaler, Anomalies: The Equity Premium Puzzle
Mehra, The Equity Premium: Why Is It a Puzzle?

BKM, Chapter 11

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SATURDAY APRIL 9 2011

First third
Performance Evaluation

Module 8
Notes on Performance Measurement and the Ratings System
Measuring Mutual Fund Performance
Case: Morningstar

BKM, Chapter 24

Second third
Final Exam Review

Final Third

Final Exam