Dr. David Nawrocki

VILLANOVA UNIVERSITY

Villanova School of Business

Department of Finance

Fall 2008

Office Hours: Th 1:00pm - 2:30pm or Fridays by appt.

2. Tuva or Bust, Ralph Leighton and Richard Feynman, Required.

3. Surely You're Joking, Mr. Feynman, Richard Feynman and Ralph Leighton, Required.

4. Portfolio Management Software Package., David Nawrocki, Computer Handholders, Required.

Course Description

This course will cover advanced topics in investment management and modern portfolio theory (MPT) including regression analysis, risk measurement, portfolio allocation algorithms, decision systems, international diversification and utility theory.   Much of this material is covered in Level 3 of the CFA exam.  The course stresses application of statistical techniques through the use of appropriate computer packages. The student is expected to use the computer heavily in order to apply and learn the techniques that are covered in class. The course places a heavy stress on teaching yourself how to learn. The emphasis is on learning!!!!!

Prerequisites include Investments I, Stat I and II, Financial Markets, Computers in Management, and Senior Year Standing.

It is the student’s responsibility to be certain that the prerequisites have been successfully completed. If at any time during the semester it is determined that a student has not completed the prerequisites, the student can be administratively dropped from the course without credit or tuition refund.

Attendance Policy

Attendance is expected and heavily recommended. The computer projects and the final exam are from classroom lecture material. Textbook and handout materials are for reference.  I reserve the right to make changes in the assignments.  Please make sure that you attend class to keep up-to-date with any changes.

Topics:

1. Modeling and Decision Systems ...............Lecture

a. Decision Support Systems, Learning, Artificial Intelligence

2. Portfolio Management

a. Macroeconomic (Business) Cycles...........Lecture

b. Fundamental Screening of Stocks...........Lecture

c. Measuring Return, Sources of Information..(EG)Ch.1,2,3

d. Efficient Frontier Diversification........(EG) Ch.4,5,6,7,8,9

e. Utility Theory............................(EG) Ch.10,11

f. Portfolio Evaluation......................(EG) Ch.24,25,26

g. Adjustments for Forecasts.................Lecture, (EG) Ch 19

h. International Diversification.............(EG) Ch. 12

i. Option Pricing and Portfolio Insurance....(EG) Ch.22,Lecture

j. Bond Management, Duration, and Futures....(EG) Ch.20,21,23

30% Second Term Paper - MarketBase and PMSPP - One Period Portfolio Optimization.

40% Third Term Paper - Using MarketBase, PMSPP, REVISE - Portfolio Revision.

Method of Instruction - Class Lecture, Outside Reading, Outside Preparation of Projects.

Late Policy

All papers are due by 4:30 on the due date.  The final paper is due during finals week.  The date will be set later in the semester.  Late papers will have reduced grades based on degree of lateness (12% penalty per week). The Finance departmental office will accept papers and time/date stamp them. There will be NO acceptable excuses for late papers or missed exams. All papers handed in when I am not present have to be date/time stamped by a secretary or faculty member.  Incomplete papers will have reduced grades based on the degree of completeness.

Teams

You ARE to work in teams of two (with one group of three if we have an odd number of students). Papers with similar computer results or with similar presentations or similar styles will be downgraded at the discretion of the professor. The professor reserves the right to give an F Grade to any paper that he feels has violated the conditions as stated on this course outline. There will NOT be a group grade on the term papers unless all members of the group sign a petition for a group grade. Each student's grade will be based on their section of the paper. Dishonesty in these assignments WILL result in a grade of F.

Honor Statement

You are expected to operate according to professional standards of ethics. On each paper, a statement to the effect that the paper contains only your work (and not the work of other students both past and present) is required for BOTH PAPERS. In addition, each student has to sign or initial his/her section of the paper. Each section of the paper has to be identified as the work of a particular student. The person who signs for a section of the paper is solely responsible for that section (all of the good and all of the BAD). Papers without an honor statement will be considered late until the honor statement is submitted. Your senior year is NOT the time to be taking ethical short-cuts. I will put a hold on your diploma for cheating.

The Code of Academic Integrity of Villanova University addresses cheating, fabrication of submitted work, plagiarism, handing in work completed for another course without the instructor’s approval, and other forms of dishonesty. For the first offense, a student who violates the Code of Villanova University will receive 0 points for the assignment. The violation will be reported by the instructor to the Dean’s office and recorded in the student’s file. In addition, the student will be expected to complete an education program. For the second offense, the student will be dismissed from the University and the reason noted on the student’s official transcript.

Paper Format

The papers are to be typed, double spaced with any references and footnotes collected at the end of the paper. Information from computer printouts should be organized into tables and graphs which are to be integrated into the text of the paper. Appendices are UNACCEPTABLE. Failure to meet these standards as well as poor grammar and spelling will result in letter grade drops for each violation. Papers are as long as you need them to be to convey the desired information. Papers that provide class notes or tutorials in statistics or contain extraneous information are unacceptable (An F grade will be assigned.) You are expected to provide the statistical results from the computer using tables and graphs. Papers without results are not completed papers.

Other Issues

I will not tolerate any disruption of class by beeping computers or ringing cell phones. Surfing the internet is to be on your own time not classroom time.

Computer Programs

Outline for Second Term Paper

NOTE:   The CRSP dataset will be current to December 2007 

III.Use PMSP to generate an investment portfolio from an efficient frontier
    every 6 months starting in December 1990 and ending in June 2007.  You
    will need to change your historic period using the SETUP option in PMSP.
    Write down the stocks and allocations for each portfolio.  Make sure
    that your 8-10 stocks are drawn from the industries that are appropriate
    for the current phase of the business cycle.  Put allocations and stock
    returns into the summary table discussed in class.

IV. Use the REVISE program to generate the performance results of a buy and
    hold strategy, a rebalance strategy, and a controlled revision strategy
    where you revise the portfolio every 6 months.  Save the portfolio results
    to a disk file.

V.  Input the portfolio returns into PMSP and evaluate the performance of 
    strategies using Correl or EVAL.

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