Introductory description

This module aims to give students a realistic experience of the responsibilities involved in managing money for clients. It provides an introduction to practical investment management techniques, building on the work of the modules of Term 1 and requires that each student run a simulated portfolio on a real portfolio management system.

Concurrently, it encourages students to engage with current topics in the financial news and understand what effect such news may have for the securities they manage. This module provides continuity, context and a contemporary angle.

Module web page

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

Indicative syllabus:
Investor categories, differences in opportunity sets, and investment goals (total return versus risk management etc) and styles.
How to structure a beta portfolio, e.g. risk parity.
What is risk budgeting? Allocating to a GTAA portfolio.
What constraints should we apply to an alpha portfolio?
Risk management from a practical perspective: how to deal with unwanted risk concentrations?
Stop loss management, macro risk and VaR analysis.
What does a good research process look like? Data sources and data lags.
Empirical methodology – pros and cons of various econometric methods from a practical perspective.
In sample versus out of sample testing.
Additivity of factors, decay of factors.
Pre and post transaction cost analysis: breaking even in the real world.
An underpinning thread throughout this module is the financial manager’s responsibility to act legally, ethically and professionally in all her investment decision-making and actions.

Learning outcomes

By the end of the module, students should be able to:

• Discuss different investor categories, differences in opportunity sets, and investment goals (total return versus risk management, e.g.) and styles (passive versus active, e.g.; systematic versus discretionary).
• Demonstrate understanding of and describe the investment strategies they have been using in detail and the context which has driven the investment returns.
• Understand, critically evaluate and replicate empirical studies published in journals, and apply the techniques to a 'live' portfolio.

Indicative reading list

Asness, Clifford S., Moskowitz, Tobias J. and Lasse Pedersen "Value and Momentum Everywhere" Journal of Finance, 2013, vol.68, issue 3, 929-985.
Moskowitz, Tobias J., Ooi, Y.H. and Lasse Pedersen, "Time series momentum", Journal of Financial Economics, 2012, vol. 104, issue 2, 228-250.
Koijen, Ralph S.J., Moskowitz, Tobias J., Pedersen, Lasse H. and Evert B. Vrugt "Carry", Journal of Financial Economics, 2018, vol. 127, issue 2, 197-225.
Asness, Clifford S. (Winter 1996). "Why not 100% Equities". Journal of Portfolio Management 22 (2): 29.
Lo, Andrew and Kathryn Kaminski. When Do Stop-Loss Rules Stop Losses?, Journal of Financial Markets 18 (2014), 234-254.
Lo, Andrew. What Happened To The Quants In August 2007?, Journal of Investment Management 5 (2007), 29-78.
Lo, Andrew. The Three P's of Total Risk Management, Financial Analysts Journal 55 (1999), 13–26.
Melvin, Michael, Prins, John and Duncan Shand. 2013. "FORECASTING EXCHANGE RATES: an investor perspective", Handbook of Economic Forecasting, volume ii, Timmerman, A. and Elliott, G. eds, p.721-750.
Qian, Edward. Risk Parity and Diversification, The Journal of Investing, Spring 2011.

Subject specific skills

Interpret the results from the empirical studies in order to build signals / models and measure risk in portfolios.
Build and manage a 'live' investment portfolio and be able to describe the drivers (both internal and external) of
returns.

Transferable skills

Written communiciation.