Investments

Teacher(s)

Iania Leonardo;

Language

English

Prerequisites

• Econometrics, Finance and Fundamental mathematical and statistical concepts. Concepts covered in courses such as the ones listed below should be known.
• Econométrie [ LECGE1316 ]
• Mathématiques en économie et gestion I [ LECGE1112 ]
• Mathématiques en économie et gestion II [ LECGE1230 ]
• Statistique en économie et gestion I [ LECGE1114 ]
• Finance [ LECGE1332 ]

In addition, this course is reserved for students with a bachelor's degree in business engineering or students with equivalent quantitative method skills.

Main themes

The class describes some of the main strategies used by active fund managers and proprietary traders and provides a methodology to analyze them. In class and through exercises, the strategies are illustrated using real data and students learn to use “backtesting” to evaluate a strategy. The class also covers institutional issues related to how trading works, liquidity, margin requirements, risk management, and performance measurement.
The class discusses the main strategies active fund managers use in equity markets (discretionary equity investing, short selling, quantitative equity strategies), in tactical asset allocation of equity indices, currencies, fixed-income, and commodities (global macro, managed futures), and in relative-value arbitrage strategies (fixed income arbitrage, convertible bond arbitrage, event driven investments).
To analyze these active investment strategies, the class applies tools for performance measurement, backtesting, regression analysis, managing transaction costs, market liquidity risk, funding a strategy, margin requirements, risk management, drawdown control, and portfolio construction. Also, the class discusses the economics underlying these strategies, why certain strategies might work and why others might not.

Learning outcomes

At the end of this learning unit, the student is able to :
1	During their programme, students of the LSM Master's in management or Master's in Business engineering will have developed the following capabilities' KNOWLEDGE AND REASONING 2.2 Master highly specific knowledge in one or two areas of management: advanced and current research-based knowledge and methods. A SCIENTIFIC AND SYSTEMATIC APPROACH 3.3 Consider problems using a systemic and holistic approach: recognize the different aspects of the situation and their interactions in a dynamic process. WORK EFFECTIVELY IN AN INTERNATIONAL AND MULTICULTURAL ENVIRONMENT 5.2 Understand the international socio-economic dimensions of an organization and identify the associated strategic issues and operational decisions. TEAMWORK AND LEADERSHIP 6.1 Join in and collaborate with team members. Be open and take into consideration the different points of view and ways of thinking, manage differences and conflicts constructively, accept diversity.

Content

The content of the course is the following:

• Part 1: Setting the stage:
  • Financial instruments;
  • Risk-return relationship;
  • Empirical evidence of return predictability;
  • Efficient market hypothesis;
  • Portfolio formation.  
  • Bloomberg market concepts® test (all modules).
• Part 2: Active investment:
  • Mutual and hedge funds;
  • Evaluation of trading strategies: Performance measures;
  • Finding and backtesting strategies: Profiting in efficient inefficient markets;
  • Portfolio construction and risk management;
  • Trading and financing a strategy: market and funding liquidity.
• Part 3:  Equity strategies
  • Introduction to equity valuation and investing;
  • Discretionary equity investing;
  • Dedicated short bias;
  • Quantitative equity investing.
• Part 4: Asset allocation and macro strategies
  • Introduction to asset allocation
  • Global macro investing
  • Managed futures: trend-following investing
• Part 5: Arbitrage strategies
  • Introduction to arbitrage pricing and trading
  • Fixed-income arbitrage
  • Convertible bond arbitrage
  • Event driven investments.

Teaching methods

• Lectures
• Teamwork
• Bloomberg market concepts® test (all modules).

Evaluation methods

Continuous evaluation

• Date: will be specified later
• Type of evaluation: Group Exercises, Closed-book written test, Bloomberg Market Concepts (all modules)
• Comments: No

Evaluation week

• Oral: No
• Written: No
• Unavailability or comments: No

Examination session

• Oral: No 
• Written: No
• Unavailability or comments: No

Bibliography

 “Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined.” by Lasse H. Pedersen, Published by Princeton University Press, 2015, pp. 357.

Faculty or entity

CLSM