Course syllabus - Portfolio Theory II

Objectives

The objective of the course is to give the students the opportunity to extend their knowledge of portfolio theory.

Learning outcomes

Upon completion of the course, the student is expected to be able to

1. describe the limitations of the CAPM and explain Roll's critique
2. derive models that extend the CAPM
3. perform different tests to verify the CAPM's validity
4. apply non-mean-variance criteria to construct an optimal portfolio
5. compare different portfolios based on performance measures
6. explain the concept of market timing
7. calculate the VaR and the ES of a portfolio
8. implement the models studied using a software/programming language suitable to work with financial time series
9. write a report and present a topic related to recent research in the field of portfolio theory

Course content

- CAPM: assumptions and definitions, limitations and Roll's critique
- Extensions of the CAPM: risk-free borrowing or lending, personal taxes, transaction costs, unmarketable assets
- Empirical tests of the CAPM: time-series tests, cross-sectional tests, multivariate tests
- Non-mean-variance portfolios: geometric mean return criterion, safety-first criterion, stochastic dominance criterion
- Portfolio performance evaluation: single-parameter portfolio performance measures, market timing, index of total portfolio risk (ITPR)
- Risk management: portfolio value at risk (VaR), decomposition of a portfolio's VaR, expected shortfall (ES)

Specific requirements

At least totally 120 credits in the engineering, natural sciences, business administration or economics areas including Portfolio Theory I, 7.5 credits, of which 6 credits must be completed at the beginning of the course, or the equivalent. In addition Swedish course B/Swedish course 3 and English course A/English course 6 are required. For courses given entirely in English exemption is made from the requirement in Swedish course B/Swedish course 3.

Examination

OVN1, Exercise, 1 credit, exercises concerning learning outcomes 1-8, grades Fail (U), Pass (G) or Pass with distinction (VG).
SEM1, Seminar, 1.5 credits, active participation in seminars concerning learning outcomes 1-9, grades Fail (U), Pass (G) or Pass with distinction (VG).
TEN1, Written examination, 5 credits, individual written examination concerning learning outcomes 1-7, grades Fail (U), Pass (G) or Pass with distinction (VG).

For Pass with distinction (VG) on the course as a whole, the student must have earned that grade for all parts: OVN1, SEM1 and TEN1.

A student who has a certificate from MDU regarding a disability has the opportunity to submit a request for supportive measures during written examinations or other forms of examination, in accordance with the Rules and Regulations for Examinations at First-cycle and Second-cycle Level at Mälardalen University (2020/1655). It is the examiner who takes decisions on any supportive measures, based on what kind of certificate is issued, and in that case which measures are to be applied.

Suspicions of attempting to deceive in examinations (cheating) are reported to the Vice-Chancellor, in accordance with the Higher Education Ordinance, and are examined by the University’s Disciplinary Board. If the Disciplinary Board considers the student to be guilty of a disciplinary offence, the Board will take a decision on disciplinary action, which will be a warning or suspension.

Grade

Three-grade scale