# Investment Management

[Lecture notes are in 3 different pdf files according to midterm topics.]

Semester: Fall 2022

Lecturer: Prof. Dr. Nuray Güner

Grade: AA

Book: Investments by Zvi Bodie, Alex Kane and Alan J. Marcus, Global Edition, 2011, McGraw Hill International Edition.

General Comment: Investment Management was my favorite course for Fall 2022. I highly suggest attending each class and taking notes carefully since Prof. Güner is amazing at her job. While talking about the topic, she always brings up-to-date articles to class and mentions the most important professor in that area.

Suggestions

Watching the "Gamestop" documentary from Netflix

Understanding basic definitions of statistics terms

Trying to trade in the stock exchange market

Lastly:

The course could be more applicable; it was much more like a seminar course (we took it with Ph.D. students).

Bonds were too complicated; our department has a "Fixed Income Analysis" course again given by Prof. Güner. The bonds part of this course scared us a little bit.

Here is my individual homework for Walt Disney (I got 93):

Keywords (for me):

Chapter 1:

CAPM

Fisher effect

Fixed income/debt, common stock/equity, derivative securities

Efficient market

Passive management & active management

ADRs - American Depository Receipts-

Mortgage pass-through securities

Unbundling CFs

Chapter 17:

Fundamental analysis - a top-down approach

Technical analysis

Key economic variables (GDP, consumer sentiment, unemployment rate, interest rate & inflation, budget deficit)

Fiscal Policy & Monetary Policy

Business cycles - indicators

Sector rotation

Diamond framework - 5 forces

Chapter 18 - Valuation Models

Book Value - liquidation value & replacement cost

Expected holding period return

Required return

Intrinsic value vs. market value

Dividend discount model

No growth model

Constant growth model

Life cycles and multistage growth model

Price-to-earnings, price-to-book, price-to-cash-flow, price-to-sales ratios and their comments

Free Cash Flow to Firm Approach

Free Cash Flow to Equity Approach

Chapter 2:

Dow Jones Industrial Average Index

Price-Weighted Index

S&P Index, NASDAQ Composite, NYSE Composite, Wilshire 5000

Market-Value-Weighted Index

Equally-Weighted Index

Chapter 3:

IPO, SEO (primary, secondary shares)

Investment banking: Underwriters, underwritten agreement, standby agreement, best effort, private placements

Market types: Dealer (NASDAQ), Auction (NYSE)

Order types: Market executed immediately, price contingent (limit orders, stop orders)

Trading mechanisms:

Dealer markets (NASDAQ, Apple - more competitive markets)

Electronic communication networks (ECNs) (BIST-Turkish Stock Exchange)

Specialists markets (NYSE, IBM - more monopolistic): it has a "limit order book"

Chapter 6:

Trading costs

Buying on margin

Maintenance margin

Margin call

Short sell

Risk aversion

Indifference curves and utilities

Capital allocation of risky and risk-free assets

Complete portfolio

Opportunity sets

Using leverage or not while investing

Capital market line

Chapter 7:

Diversification of portfolios

Definition of covariance, correlation, expected return, standard deviation, mean, variance (standard deviation of returns, correlation coefficients)

Markowitz Portfolio Selection Model

Efficient Frontier

Capital allocation lines

Optimal Risky Portfolio

Risk pooling, risk sharing and risk in long run

Chapter 8:

READING REGRESSION RESULTS AND UNDERSTAND THEM

Single Index Model

CAPM Model

Multi Index Model

Chapter 9:

CAPM

The Efficient Frontier & Capital Market Line

Systematic risk & unsystematic risk

Market risk premium

Expected return & beta relationship

Difference between beta & standart deviation of return

Chapter 10:

Law of one price

Single factor model

Multifactor model

Arbitrage Pricing Theory -APT-

Well-Diversified Portfolios

Two factor model

Work of Chen, Roll and Ross (No exchange risk and other important factors)

Fama-French Three Factor Model

CAPM Decomposition

Chapter 11:

Efficient Market Hypothesis

Event Studies

Joint hypothesis testing

Market efficiency types: weak-form, semi-strong, strong

Predictors of broad market returns (Fama and French, Campbell and Shiller)

Small firm effect (SMB)

January effect (in the U.S.)

Insider trading

Chapter 15:

Bond pricing

Definition of yield, maturity, yield curve, yield-to-maturity

Interes rates: spot rate, short rate

Forward rates and forward contracts

Interest rate uncertainity

Term structure theories

Expectations theory

Liquidity premium theory

Chapter 16:

Bond price convexity

Coupon rates

Duration of bond

Bond duration vs. bond maturity

Correction for convexity (understand the graph)

Regular bonds, callable bonds, zero-coupon bonds

Immunization of interest rates

Net worth immunization

Cash flow matching-dedication

Active management: swapping strategies

Substitution swap, intermarket swap, rate participation swap, and pure yield swap

Horizon analysis

Contingent immunization

Chapter 24:

Dollar weighted returns

Time-weighted returns

Performance evaluation measures: Sharpe index, Treynor measure, Jensen's measure (Jensen Alpha), Information ratio, M^2 measure, T^2 (Treynor) Measure

Market Timing

Style analysis

Chapter 4:

Net asset value

Managed investment companies (Open-End and Close-End)

Hedge funds

Mutual funds

Funds of funds - diversification can hurt the investor

Exchange-traded funds

Foreign exchange risk