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INTRODUCTION Basics and Tips Financial markets and financial principles Principle of financial decision making under an uncertain universe Theoretical and practical meaning of a portfolio Quantitative Management Managing a portfolio The three ways of managing a portfolio The three classic phases of portfolio management Introducing the Economic Theory of Choice The two phases of the economic theory of choice (under a certain universe) Notions of indifference curves, or equivalently, investors' preferences Exercises Solving exercises with Excel STOCK SELECTION AND PORTFOLIO EVALUATION Stock Selection Propel1ies and stylized facts of stocks (e.g. importance of inflation, calendar anomalies, stock classification) Market efficiency: the three forms of efficiency (weak, semi-strong, strong) Stock eligibility: selection criteria and stock valuation (Dividend Discount Models and comparative approach) Importance of earnings Markowitz Model Measuring stock returns (one¿period rctul'l1s) The risk/return universe in finance (selecting a risk measure: volatility. Or equivalently standard deviation) Selection criteria for portfolio optimization Efficient frontier with and without risk free asset Exercises Solving exercises with Excel PORTFOLIO SELECTION: OPTIMALITY CRITERIA Expected Utility Theory Investor preferences and properties of utility functions Risk aversion Investment horizon Other Optimization Criteria Maximizing a portfolio's average geometric return Stochastic dominance Quantile criteria: 'Value-at-Risk' and 'Safety firsf principles Impact of skewness on asset returns (Jnvalidate Gallssian assumption) Exercises Solving exercises with Excel PORTFOLIO SELECTION: PERFORMANCE One-Index Models: CAPM (Sharpe 1964) Hypotheses (e, g. returns' modeling) Benchmark index and principle (diversifiable risk/ non-diversifiable risk) The role of diversification Testing the CAPM's validity in practice Performance Measure Classic measures (i.e. performance indexes of Sharpe
1966. Treynor
1965. Jensen 1968 and equivalence between indexes) Measuring selectivity Measuring market timing (e.g. decomposing the portfolio's global performance;Treynor-Mazuy.
1966: Henriksson-Melion. 1981; Wiegel, 1991) Potential valuation biases of classic measures (assets' stylized in financial markets such as return asymmetry and non-Gaussian features) Alternatives and studies proposed by academic and empirical research in finance (APT. Expected Shortfall, Tail Risk. heteroscedasticity in stock returns) Multi-Index Models' Extensions APT (i. c. Asset Pricing Theory ot'Rossl 980 or multi-factor models) Model of Fama & French (1992) (3 explanatory factors) Model of Carhart (1997) (4 explanatory factors) Model of Li (2001) (6 explanatory ('actors) Exercises Solving exercises with Excel APPENDIX A: Functional Analysis and Matrices APPENDIX B: Introducing the Gaussian Probability APPENDIX C: Solving for Markowitz (1952) Constrained Optimization APPENDIX D: Introduction to Econometrics APPENDIX E: Other Mathematical Tools