AEM 4670/5670-Investments

Spring 2022
TR 8:05 – 9:20am, Warren Hall B75

Professor Justin R. Murfin

301H Warren Hall
Dyson School of Applied Economics and Management
S.C. Johnson College of Business, Cornell University
Email: justin.murfin@cornell.edu

Course Website https://canvas.cornell.edu/courses/36200

TA Haokun Sun (hs932)

Admin Support Torrey Dennis (tkj8)

Office Hours TBD or by appointment

(See “Announcements” on Canvas for changes)

Textbook Bodie, Kane, and Marcus, Investments, McGraw-Hill Irwin

ISBN: 0-07-338237-X or 978-1260819427, Price: $124.99

Topical readings for class discussion may also be distributed via course website
over the course of the semester.

Additionally, students enrolled in the upper level version of the class (5670) will
be assigned additional readings that empirically test the economic theories
proposed in class, more rigorously derive certain key results assumed in the
course textbook, and/or critically evaluate popular alternative investment
strategies through the lens of the course.

This course is enrolled in The Cornell Store’s Instant Access Program. Instant
Access is a collaboration between The Cornell Store, Bursar, Center for
Teaching Innovation, along with top publishers, working together to ensure
access to course materials by the first day of class. The digital course materials
provided in this course are at a reduced price compared to the same version in
printed form. You will automatically be billed to your bursar account for this
digital content unless you opt-out. Students may choose to opt-out of the program
by the designated opt out date. Opting out does not mean you are dropping the
course and vice versa. If you choose not to receive the digital content from The
Cornell Store’s Instant Access Program, you are responsible for finding another
way to acquire the materials to be prepared for the course. To maintain access
to the digital content, your bursar account will automatically be charged after
the opt-out date. Please see the Instant Access tab in Canvas to view course
materials included in the Instant Access Program or to opt-out. Visit
cornellstore.com/instant-access-program for more information.

The option to opt-out is available only for the first two weeks of class
(2/14/2022).

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Prerequisite AEM 2240 or 2241, exceptions to be approved by instructor

Learning Objectives The course provides a broad overview of investment management, focusing on
the application of finance theory to the issues faced by portfolio managers and
investors in general. Topics include asset allocation, asset pricing models such
as the capital asset pricing model and arbitrage pricing theory, active portfolio
management, and performance evaluation. These tools provide a disciplined way
of thinking about investment decisions, while simultaneously framing how we
think about the historical performance of markets. While particular attention will
be given to equity markets, we will also touch on implications for fixed income
and derivative securities. Finally, we will spend time looking at alternative asset
classes such as hedge funds and private equity.

All students will be responsible for understanding the intuition behind and
demonstrate their ability to build and use tools related to the construction of
optimal portfolios, models of expected asset returns, and active management
strategies.

Students enrolled in the upper level version (5670) we be expected, via additional
readings, to understand more formal derivations of the tools and models used in
class.

Software The course will use Excel extensively, including the use of the solver add-in.
Mac users will be responsible for finding a work around to the extent solver is
not included in some versions of excel on Mac O/S.

Grading & Course This course is offered Graded only (S/U is not allowed)
Requirements Course grades will be based on:
§ Two in-class examinations worth 25% each
§ Homework assignments worth 10% combined
§ One/two case write-ups/presentation worth 25%
• 4670 enrollees will complete this in the form of the final Firefighter Case
to be distributed and discussed in class (see Firefighter Case date under
tentative schedule). 5670 enrollees will be responsible for a second case
write up providing an evaluation of the investment strategy pursued by a
large endowment (see Yale Investments Office case under tentative
schedule). The case questions will lean on additional readings included
in the upper level course packet for 5670.

§ Class Participation worth 15%

There will be no additional assignments to offset poor exam performance or

missed problem sets/cases. The course is graded on a curve, your ultimate grade
will depend on your relative standing at the end of the semester among your peers.
The median student will receive roughly a B+.

Homework Details I expect to assign roughly three problem sets to be completed. Homework
questions and due dates will be announced both in class and on the course
website. Assignments may be worked on in groups, but must be turned in
individually. Assignments will be graded primarily for completeness. Late
assignments lose 25% of total possible points per day.

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 Announcements & Please monitor daily both the “Announcements” on Canvas
Communication Outside (https://canvas.cornell.edu/courses/36200) AND the email account you linked to
of Class Canvas. I will communicate with you outside of class by either posting an
Announcement OR sending you an email. Examples of such information may be
“Class Canceled” or “Exam Information.”

Classroom Behavior I expect everyone to behave professionally in class and to arrive on time. Always
close your laptop and turn off your smart phones once class begins. Once in
person instruction resumes, there is not a hybrid option for the class. Video
recordings of class lectures will not be made available. Students missing class
are expected to keep up with material via PDF course notes shared via Canvas,
BKM readings, and office hours as necessary.

If you have a disability-related need for reasonable academic adjustments in this course, provide me with
an accommodation letter from Student Disability Services. Students are expected to give two weeks’ notice
of the need for accommodations. If you need immediate accommodation, please arrange to meet with
(Instructor, TA, Course Coordinator) within the first two class meetings.

It is my intention that students from all backgrounds and perspectives are served equally by this course,
that students' different learning needs are addressed, and that student views and experiences that are
different from each other and from my own are a resource for the class. If you have concerns about course
material or my presentation thereof, please don’t hesitate to contact me after class to discuss.

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 Tentative Schedule (subject to change)*

Date Lecture Text/assignments

Week 1-2 Class Overview BKM 3-5
Markets and Institutions
Asset Classes and Asset Returns
Week 3 Building optimal portfolios BKM 6-8
Week 4 The Capital Asset Pricing Model BKM 9-10
Arbitrage Pricing Theory and Factor Models
Week 5 Evidence from the CAPM and APT BKM 11-13

TBD Midterm 1—in class

Week 7-8 The Efficient Market Hypothesis and
Behavioral Finance
Week 9 Active Portfolio Management BKM 27.3
Week 10-12 Alternative Investments BKM 26
TBD Case: Yale University Investments Office

Week 12-13 Fixed income/Forwards and Futures

TBD Midterm 2 —in class

Last Day of Class Firefighter Case Case write-up due in class