Titular Professors
Principals of Finance and Statistics
On the completion of this course students should have gained the following competences:
- An understanding of the nature of modern money, credit and debt.
- An understanding of how monetary policy works and the role of both the central bank and commercial banks in money creation and destruction.
- An overall picture and understanding of the investment industry
- An understanding of the nature of the different asset choices facing investors
- An understanding of the main theories of portfolio construction and the empirical record of different investment strategies
- An understanding of the main methods of valuation and the ability to participate in debates about market pricing and trends.
- Hands-on experience of constructing investment portfolios and designing and executing investment strategies (using online simulation).
- An ability to make sound investment decisions in the real world.
- The basic knowledge to assess how technological innovation might affect money, banking and investment in the future
Introduction
- What is a stock?
- Portfolio setup: Project 1a and 1b
- Financial markets
- Commercial banks' balance sheet
- Investment banks and financial markets
- Debt and equity
Risk and Return (I)
- Risk and required rates of return
- The standard deviation as a measure of risk
- Illustration: the Sharpe ratio in action
Risk and Return (II)
- Market risk and firm-specific risk
- The benefits of diversification
Asset management: active & passive
- Active asset management
- The Efficient Markets Hypothesis
- Indexing: Vanguard
- Exchange-Traded Funds (ETFs)
Modern portfolio theory & valuation
- Beta and CAPM
- Determinants of beta
- The Capital Asset Pricing Model
- The Dividend Discount Model
- Relative valuation: Price-to-Earnings ratio
Bond valuation
- Characteristics of bonds
- Properties of present value
- Zero-coupon bonds
Understanding credit spreads
- Determinants of interest rates
- Credit spreads during financial crisis
- Credit Default Swaps (time permitting)
Money: measurement, creation and destruction
- Risks in commercial banking: the yield curve and the BIS's guidelines for credit risk management
- Defining money: the central bank's balance sheet
- Measuring the quantity of money
- Growth in the quantity of money
Monetary Policy - interest rates and quantitative easing; banking stability
- Interest rate policy
- Quantitative easing and tightening
- Central bank liquidity swaps
Crypto-currencies
- Bitcoin, Ethereum: the money of the future?
- Stable coins
- Central bank digital currencies (CBDCs)
The course will combine lectures with discussion- and projected-based learning. I will distribute lecture notes and readings each week. There will be no required textbook.
The readings will include articles from financial newspapers, magazines or online media, including relevant blogs of interest. Students should be ready to discuss in class the issues raised in these articles. We shall also create working groups to design an investment strategy and build virtual investment portfolios, thereby providing students with an opportunity to get some hands-on experience with investment decision-making, implementation and outcomes.
Attendance & participation 10%
Mid-term evaluation 20%
Financial Innovation project 20%
Course Project 1a and 1b 25%
Final exam 25%
Reference Textbooks:
- Aswath Damodaran, Applied Corporate Finance, John Wiley.
- Zvi Bodie, Alex Kane and Alan J. Marcus, Essentials of Investments, McGraw-Hill.
Further selected readings, mainly from financial newspapers, magazines and blogs will be distributed during the course.
News/opinion/blogs/reading:
www.marketwatch.com
http://finance.yahoo.com/ or https://www.google.com/finance
https://www.bloomberg.com/opinion/authors/AT2bBytfUHQ/john-authers
https://www.marketwatch.com/author/mark-hulbert
https://www.ft.com/markets/the-long-view
http://www.mckinsey.com/global-themes/fintech
Data and interactive graphs:
http://irrationalexuberance.com/
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/dataarchived.html
Some market valuation indicators:
http://www.multpl.com/
http://shiller.barclays.com/SM/12/en/indices/static/historic-ratios.app
https://www.starcapital.de/en/research/stock-market-valuation/
On money and credit:
- James Grant (2019), Walter Bagehot. The Life and Times of the Greatest Victorin, Norton
- Anata Admati and Martin Hellwig (2013), The Bankers' New Clothes: What's Wrong with Banking and What to Do about it, Princeton University Press
- Johnson, Manuel H & Keleher, Robert E. (1996), Monetary Policy: A Market Price Approach. Quorum Books.
On the impact of digital technologies:
- Jonathan McMillan (2014), The End of Banking: Money, Credit, and the Digital Revolution, Zero/One Economics
- Andreas M. Antonopoulos (2016), The Internet of Money. Merkle Bloom LLC
On Investment:
- Robin Wigglesworth. Trillions. How a Band of Wall Street Renegates Invented the Index Fund and Changed Finance Forever. New York: Penguin, 2021.
- Jeremy J. Siegel (1994), Stocks for the Long Run, McGraw-Hill
- John Kay (2009), The Long and the Short of it: A guide to finance and investment for normally intelligent people who aren't in the industry, The Erasmus Press
- Robert J. Shiller (2000), Irrational Exuberance, Princeton University Press
- Burton G. Malkiel (1973), A Random Walk Down Wall Street, W.W. Norton & Company
- Peter Stanyer (2006), Guide to Investment Strategy: How to Understand Markets, Risk, Rewards and Behaviour, The Economist
- Peter L. Bernstein (2007), Capital Ideas Evolving, John Wiley & Sons
- Charles P. Kindleberger (1978), Manias, Panics, and Crashes, Palgrave Macmillan
- William Bernstein (2001), The Intelligent Asset Allocator, McGraw Hill
- Michael Lewis (2010), The Big Short: Inside the Doomsday Machine, W.W. Norton.
- Zuckerman, Gregory (2019), The Man who Solved the Market. How Jim Simons Launched the Quant Revolution. New York: Penguin [VIDEO] [see]