| Investment and Portfolio Management |
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FIN B850
Investment and Portfolio Management
| Introduction |  |
FIN B850 Investment and Portfolio Management is a ten-credit, one-year, postgraduate-level course. It is designed to give postgraduate learners who are looking for in-depth discussion of investments and portfolio management a body of comprehensive knowledge and techniques as well as insight into the investment funds industry, with considerable emphasis on Hong Kong. Its goal is to assist postgraduate learners in understanding portfolio management concepts, and to integrate this body of knowledge into a total framework that relates to making investment and portfolio management decisions.
Unlike FIN B385 or FIN B481 (the OUHK's undergraduate-level investment management course), which focuses on investment decision making, FIN B850 not only teaches the analytical concepts underlying investment management but also emphasizes the logical sequences of portfolio construction and portfolio management; these topics are not covered comprehensively in FIN B385 or FIN B481. More importantly, the approach of FIN B850 is quite distinct from that of FIN B385 or FIN B481. FIN B850 first introduces the analytical concepts in investment and portfolio management and then supplements them with real-life examples and cases to illustrate these concepts in investment and portfolio management. Since FIN B850 is an MBA-level course, the application of investment and portfolio management concepts is an integral part of the course. In addition, all examples and cases used in the course are chosen for their local relevance. For instance, the investment decision making of a typical Hong Kong fund manager, and the hedging strategies of Hong Kong institutional investors in the derivatives market will be discussed extensively in the course.
FIN B850 also introduces you to current issues in Hong Kong's investment setting. Implications of the change in Hong Kong's market microstructure for market efficiency are also covered.
The approach of this course is to give a balanced emphasis between theories and applications. Presentation of the material is intended to be rigorous and empirical, befitting a proper discussion of modern investment and portfolio theory. Use of empirical studies and examples, particularly those related to the Hong Kong investment funds industry, is essential for the theories to be exposed to the real world and to be judged on the basis of how well they explain reality. Integrated cases on investments and portfolio management will be discussed during day school meetings.
The comprehensive coverage of this course is consistent with the core body of knowledge recommended by the Asian Securities Analysts Federation (ASAF) and the Hong Kong Securities Institute (HKSI), giving learners considerable background that will help them to prepare for the HKSI membership examination.
| What this course helps you do | |
This Course Guide tells you briefly what the course is about and how you can work your way through the material. For information on assignments, please refer to the Assignment File. For information on due dates and deadlines for work to be submitted, please refer to the Presentation Schedule.
After introducing the course aims and learning outcomes, this Course Guide provides:
information on course materials and the course textbook;
course assessment information regarding assignments and the final examination; and
- information on tutorials and tutor support.
Course aims
This course aims to explain the modern financial theories for investment and portfolio management. It evaluates an analytical framework to value financial assets, and introduces the appropriate skills in choosing financial instruments for hedging portfolios and measuring portfolio performance.
Course learning outcomes
Upon completion of this course, you should be able to:
Analyse the concept of market efficiency and discuss its implications.
Assess the importance of the portfolio approach in security analysis, and plan investment decisions accordingly.
Evaluate the intrinsic values of equity securities, fixed-income securities and derivatives by applying various valuation models.
Formulate active and passive portfolio management strategies, and strategies for international diversification.
- Critically evaluate portfolio performance using the appropriate measures.
| About the course | |
This course comprises ten units. The first three units cover the core concepts related to investment techniques, portfolio theory, asset pricing models and market efficiency. These models and theories are the building blocks for modern investment management. The next three units consider the use of various financial assets -- such as common stock, fixed income securities, options and futures contracts -- in a portfolio. In order to formulate investment and risk management strategies, investment managers must be well-versed in these securities and understand how they impact a portfolio. The final four units focus on portfolio management and protection strategies for equity and fixed-income portfolios. Contemporary topics such as international diversification, performance evaluation and fiduciary duties are also covered.
Course overview
The following chart gives a general overview of the course structure.
Unit Title Weeks Assessment activity
(end of unit)1 Investment setting, capital markets and market efficiency 3 2 Modern portfolio theory 3 Assignment 1 3 Asset pricing models 3 4 Analysis of equity investments 3 5 Analysis of fixed income investments 3 Assignment 2 6 Analysis and valuation of derivative securities 3 7 Managing portfolios: constructing a portfolio and active portfolio management strategies 3 8 Managing portfolios: passive portfolio management strategies and risk management 3 9 Portfolio performance evaluation 3 Assignment 3 10 International diversification and contemporary issues 3 Revision 2 Total 32
| Course materials | |
Printed materials
The FIN B850 course materials include Units 1–10, an Assignment File and a set of readings. The units will be designed to enhance, augment, and further explain the topics in the textbooks.
Readings
You may be instructed in the study units to read articles or other supplementary materials. These will be available online or provided as hard copies at the backs of the study units.
E-Library E-Reserve readings
You may be instructed to read articles in the E-Library E-Reserve. To read these items, go to the OUHK E-Library and click on 'E-Reserve'. Log in, click 'Accept/Agree' on the Copyright Restrictions page, fill in the 'Course Code' box, and click 'Search'.
Textbooks
The following textbooks will be required for FIN B850:
Bodie, Z, Kane, A, Marcus, A J and Jain, R (2014) Investments, Asia Global Edition, McGraw-Hill (Asia).
Reference book
Brown, K C and Reilly, F K (2012) Analysis of Investments and Management of Portfolios, 10th (International) edn, South-Western/Cengage Learning..
Non-print media
You may invest in a financial calculator. We recommend the HP 10B, HP12C, or Texas Instruments BAII Plus. Less expensive models such as the Casio FC-100 may also be adequate. These calculators will all be allowed at the final examination and they are all included in the 'List of approved calculators'. Please note that you cannot use the Casio FC200 in the examination.
You will also be required to have access to the Internet in order to retrieve and track financial information required by some prescribed activities and practice tests. Computer access and proficiency in spreadsheet software (such as Microsoft Excel) will also be necessary in order to complete some activities or assignment questions. Some basic knowledge in using Excel will be extremely useful to the course. In particular, the calculation of an individual stock's beta as well as a portfolio's beta can be handled in an Excel file.
Internet activities
This course encourages the use of the World Wide Web as a learning tool and a source of information among students. Therefore, each unit will contain a list of the websites that relate to the topics or issues covered, as well as activities that require the sourcing of information from these websites. You will be expected to 'surf the net' to find updated information and real-world, online applications of the concepts presented in the study units, in order to gain insights into the practice of investment and portfolio management.
| Use of case studies |
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Case studies are a useful and increasingly popular form of learning and assessment in the OUHK's School of Business and Administration. In this section we will look at why case studies are used and then suggest some learning strategies that you can use to approach case studies. We will also briefly discuss some problems that you may encounter as you learn from case studies.
What is a case study approach to learning?
One main purpose of a case study is to explore an issue or a number of issues in relation to an organization. The intention is to get you to carefully diagnose an organization; to focus on key problems, and to suggest how these might be resolved. Often the case is a real-life account of an organization which you are required to analyse in order to focus on a problem. Usually, the information that is provided is incomplete and you are often expected to observe developments in the organization over a period of time. The case study approach is an excellent opportunity to actively apply material that you have read and conceptual knowledge to the reality of an organization.
At the OUHK, case studies may be used as part of TMAs, exams, study units, or day-school exercises. You normally are given some information about a company (this could be both text and graphical information, such as figures and tables). You are then asked to think about some problems related to the company and to use concepts and apply theories that you have learned in your course to propose possible solutions for the company.
Let's have a look at two kinds of case study questions that you might be asked to work through in your courses. The first example is quite structured, while the second is much more open-ended.
Two examples of case study questions
Read the case study entitled 'ABC Consultants' and consider the following issues:
Using your understanding of the resource-based model, what measures could be taken to improve ABC's returns?
Drawing on your broad understanding of the consultancy industry, assess ABC's relative competitiveness and its profit potential.
To what extent do internal factors account for ABC's financial weaknesses?
Based on your assessment of ABC's financial weaknesses, formulate a new strategic intent and develop a mission statement for ABC.
Read the case study entitled 'XYZ Industries'.
Identify the key problems that are currently faced by XYZ's management.
- Propose viable solutions to these problems.
Why case studies?
As you can see from the above examples, a case study approach to learning requires a great deal of thinking and often will not easily yield a quick 'wrong' or 'right' answer. However, case studies are also good preparation for dealing with real-life business problems. Cases may be short and relatively simple, or longer and complex. The purpose is the same for both types: to give you an opportunity to develop your skills in analysing the strengths and weaknesses of the organization under examination, to consider the processes at work within the organization, and to make decisions about future actions.
Case studies are not meant to replace textbooks, but rather to ask you to draw connections between theories and practice and to apply abstract ideas, concepts, and principles to specific concrete situations. Consequently, case analysis develops a number of skills that are crucial in business. In particular, they help you to:
analyse complex, unstructured, sometimes ambiguous situations;
identify critical issues and problems;
question your own and others' assumptions;
improve your problem-solving skills;
develop your ability to find alternatives and make informed decisions;
make decisions with incomplete information and think strategically;
self-educate yourself and draw on a broad range of resources and knowledge; and
- present and justify recommendations in writing.
You may find that there are many possible 'right' answers to the questions in a case study. This illustrates that there is often no single best way to responsibly manage and solve real-life business problems.
Some guidelines for analysing case studies
The following strategies should help you to successfully analyse case studies:
1 Read the case and become familiar with the facts
First, skim read the case to obtain a general understanding of the main point(s). Highlight or underline the pertinent points as you read.
Read the case again, and this time note down critical facts (such as names, time sequences, and where events occurred). Try to understand how events have influenced decisions. Identify the important individuals or stakeholders, and try to assess the importance of supporting information in the case. How reliable is this supporting information? Are there any gaps in the information that is given?
Make a note of any questions that you have as you read the case.
2 Assess the context of the case
Try to understand the environment of the organization and the wider context of the case.
Ask yourself questions about:
The state of the organization: What is the state of this organization: good, bad or in-between? Usually this involves thinking about interpersonal relationships, and assessing production or financial problems.
Key players and systems: How do systems and people operate in this organization? Why do they operate like this? Are the systems undergoing change? How successful are the changes? Is there someone who could sabotage any future strategy? Is there someone who can ensure the success of a future strategy?
Significant trends: How does this industry operate? What are the main or unique characteristics of the industry? What were they five or ten years ago, and what are they likely to be in the future? What impact are trends likely to have on the organization under investigation? How does this organization's performance compare with that of competitors?
- Constraints: Clearly identify all constraints in the case. A constraint may be viewed as anything (usually beyond the control of the organization) that may prevent an otherwise feasible course of action from becoming a success. What is outside the control of individuals in the case study? For example, it is unlikely that any company or individual in Hong Kong could prevent a foreign government from imposing tariff barriers on imports.
A SWOT analysis is a good way to get a better understanding of the organization and the context or environment in which it is operating.A SWOT analysis considers the Strengths and Weaknesses of the organization, and the Opportunities and Threats which the organization faces in the external environment.
3 Recognize the case's symptoms
Read the case again and as you read, try listing all the symptoms of the case. The symptoms of a case are not the problems, but they may help you to identify the problems. Symptoms are all the things that are undesirable or that are not as expected. For example, falling sales could be a symptom of several problems such as poor market segmentation, poor product quality, or problems in a supply chain. At this stage of your analysis, you should just try to observe all the symptoms, and avoid prematurely identifying problems or suggesting solutions. Like a doctor who consults a patient, you first need to observe and note all the symptoms before you can give a definite diagnosis of the problem. Think about how the symptoms may be interrelated. Relationship diagrams, like the one below, may help you to see the relationships between symptoms.
4 Diagnose the case's problems
After you have a good sense of the symptoms, you're ready to determine key issues that need to be analysed more closely. You are now diagnosing the situation, like a doctor diagnosing a patient's symptoms. Ask yourself 'what seems to be the trouble in this organization?' and make a list of what you now perceive to be the key problem(s). You will probably need to go back to the details of the case and as you do this, you may add to or refine your list of potential problems.
If there are several problems, you need to order and prioritize them. You might want to number problems according to how you perceive their importance, or make a matrix, like the one below, which shows relationships between various criteria and each problem.
Criteria Problem #1 Problem #2 Problem #3 Importance: what will happen if the problem is not addressed? Urgency: how quickly must this problem be solved? Centrality: To what extent does this problem cause others? Solvability: Can this problem actually be solved? Also try to establish if there are relationships or themes in common among the various problems. Perhaps different problems in your list are actually variations of a broader central problem.
Ask yourself what assumptions you have made about the case. Are these assumptions reasonable, and are they supported by the facts? Would other people objectively suggest the same problems, based on the facts that you have? Are you suggesting problems that are not supported by the facts of the case?
After you have considered and put into order the possible problems and questioned your assumptions relating to these problems, you should write a statement of the problems as you perceive them. Avoid suggesting solutions at this stage.
Once you have a problem statement, you need to find evidence in the case to support your problem diagnosis. Also, try to identify ideas, concepts and theories from your textbook and course units which help to explain what is happening in the case.
5 Formulate criteria for a 'good' solution and identify possible constraints to solutions
Before you propose a solution, you need to consider the characteristics of a 'good' solution. Obviously, your solution should bring benefits such as improved productivity, reduced costs or greater profits. However, it also needs to be viable and to accommodate the constraints that you have already identified, i.e. Is the solution legal? Is there a budget for this solution? Does it conflict with the organization's culture?
Try to brainstorm alternative solutions. Aim to generate a broad and creative range of options and then try to rate each according to various criteria.
The following matrix demonstrates how this can be done.
Cost Ease of implementation Impact on organization culture Impact on profits Option 1 *** * * ** Option 2 * *** *** ** Option 3 ** * * *** Also refer to ideas, concepts and theories from your course materials as you consider and assess each possible solution.
It's often wise to propose a solution that allows for plausible alternatives if it should fail. Managers use the term satisfice when they are considering acceptable alternative solutions, that is, the solution is able to satisfy the situation while also making some realistic sacrifices to existing constraints. Therefore, it is a satisficing rather than a maximizing solution.
Finally, don't forget to consider the possibility of taking no action. What will actually happen if no action is taken? Are any (or all) of the solutions less viable than taking no action at all?
6 Recommend a viable solution
After you have assessed the merits and pitfalls of each alternative solution, select the best solution for the situation.
Remember that the solution needs to be viable. Can the recommended solution be introduced? Are there the resources and the willingness to implement it? Be realistic about what may work. Explain why it is the best solution within the constraints of the existing context and explain how it can be applied to the organization. Suggest a time-frame for the solution's implementation.
Outline possible strategies for implementing your solution, either partially or completely. As many feasible courses of action as possible should be considered before you choose the one that seems the most likely to succeed. The more ideas you have, the greater your chance will be of finding a solution that will work well. The complexity of most organizational problems means that it is highly unlikely that one idea alone will correct the situation. Usually a combination of actions is required, and these need to be funded differently, timed carefully and staffed as necessary.
7 Present your solution as a written recommendation
Review your final solutions and then prepare a set of written recommendations. These should clearly outline your proposed solution in relation to the problems that you have identified. Your recommendations should also include details of why these solutions are the most appropriate given the circumstances and constraints of the case. Finally, you need to clearly state how and when your proposals will be implemented.
Your tutor and your course Assignment File can provide some guidelines on how to present your recommendations.
Some mistakes to avoid as you analyse cases
When you first tackle case studies, you should be careful to guard against the following mistakes:
One of the most common mistakes made in case analysis is repeating or simply summarizing the facts of the case. Your tutor is already very familiar with the case details, so you do not have to restate them. You are required to use and analyse the facts, not repeat them. Your analysis should contain only enough case material to support your arguments. Therefore, be analytical!
You may often be tempted to just deal with symptoms and ignore the causes of the problem. It is very important to analyse the background of the case (and the climate in which the events of the case unfold).
Avoid discussing problems in isolation and do not overlook their interrelatedness. If you try to think in terms of 'systems' rather than in terms of individual problems, you are more likely to avoid this pitfall.
Students often fail to state the assumptions underlying their analysis. If any important assumptions have been made, have you questioned them and are they reasonable and appropriate? Avoid selectively using and interpreting case material in order to justify a preconceived solution.
Practical limitations and constraints may sometimes be overlooked. For example, a recommendation that a whole team be fired is probably unrealistic.
A very common mistake is poor integration of the facts in the case with the concepts, principles, and theories in the textbook. Such integration is vital. Ask yourself if relevant theories from your course have been fully and constructively applied.
- Finally, recommendations are too often not spelled out in detail or are unrealistic. A timetable for implementing them is also often not given.
Analysing cases poses many challenges, and this is one reason the case study method is so rewarding. It is a very active form of learning. It offers you a risk-free opportunity to gain managerial and organizational experience and should greatly increase your confidence to make informed decisions in the real world.
Good luck and we hope you enjoy working through the cases that you encounter!
| Course assessment | |
FIN B850 contains a variety of non-assessed activities distributed throughout each unit, a practice test at the end of each unit, as well as integrated cases. You will be able to self-assess these activities through the feedback provided for them. The activities are typically designed to emphasize a concept or a computation. The practice tests pose questions covering both the textbook material and the unit material. The integrated cases enable you to solve real-life practical problems in investments and portfolio management.
The formal course assessment includes two components. One part is the overall continuous assessment, i.e. assignments, and the other part is the final examination.
Assignments
There will be four tutor-marked assignments (TMAs). You will generally be asked to solve problems and write short essays on topics covered in the units. Short reports or cases may be included. Since the assignments are integrated in nature and each one is equally important, you are required to submit all four assignments.
How to submit assignments
You must use word processing software (such as Microsoft Word) to prepare the TMAs, and submit the TMAs via the Online Learning Environment (OLE). All assignments must be uploaded to the OLE by the due date.
Failure to upload a TMA in the required format to the OLE may result in the score of the TMA being adjusted to zero.
TMA extension policy
The assignment policy of the University as stated in the Student Handbook should be observed. Students are required to submit assignments for a course in accordance with the dates communicated by the course coordinator. Students may apply for a submission extension on the grounds of illness, accident, disability, bereavement or other compassionate circumstances.
Applications for extensions of up to seven days should be submitted to the tutor. The tutor shall consider valid and unexpected emergencies on an individual basis. Normally, documented proof of the extenuating circumstances is not required for extensions of up to seven days. The tutor shall decide and advise the student of the revised date for submission.
For extensions of over seven days, students should note the following:
If students require an extension of more than seven days on the grounds of illness, accident, disability, bereavement or other compassionate circumstances, they are required to complete an 'Application Form for Assignment Extension over seven days' and submit it to the Course Coordinator.
Supporting documents must be submitted along with the application for extension of over seven days to justify the claim.
Applications for extension should normally be lodged before or on the due date.
Applications are considered by:
- the Course Coordinator for extensions of 8 to 21 days; and
- the Dean for extensions of over 21 days.
After an assignment is submitted via the OLE, it is your responsibility to check that the assignment has been successfully submitted. Extension applications due to any problem with uploading will not be accepted. The University cannot accept any responsibility for assignments that are not received by your tutor due to any problem with submission via the OLE. As a precaution, you are advised to keep a copy of each assignment you submit.
According to the University's policy, no extension of the due date will be allowed for the final TMA. This policy will be strictly enforced. Any late submission of the final TMA will result in the score of the TMA being adjusted to zero.
Examination
The final examination is a three-hour comprehensive examination that aims to test the learner's knowledge of the course content and its applications. It will cover all parts of the course, and you should review the materials including the activities, practice tests, and marked TMAs with your tutor's comments to prepare for the examination.
The examination will consist of short essay questions, computational problems and a mini case. It will count 60% toward the course grade. Before the final examination, you will receive a specimen examination so that you can learn about the style and format of the final examination. You will also receive other information regarding examination arrangements after you send in your exam registration card.
Assessment type Weighting Assignments 1-3 40% Examination 60% TOTAL 100% It is important to note that the final course grade does not equal a simple weighted average of the assignments and examination scores. Instead, you will have to perform well in both the continuous assessment and the examination in order to achieve a good grade. Therefore, you should prepare well when you work on your assignments. Only then will you be ready when the examination comes.
| Student support | |
Tutors
At the start of the course, you will be allocated a tutor who is likely to be a practitioner in the field of investment/banking. Much of the communication you will have with the OUHK during the course will be with your tutor. The tutor takes a personal interest in students' studies and will mark and comment on your assignments. You should remember to keep a copy of all assignments you send to the tutor. These will prove useful if you want to refer to them during telephone conversations with your tutor, or if the TMA gets lost in the mail.
Supplementary lectures and tutorials
There will be 10 hours of supplementary lectures and 20 hours of group tutorial sessions. The purpose of supplementary lectures is to teach key/difficult topics which appear in the course units. The tutorials are intended to reinforce your understanding of the topics presented in the supplementary lectures and course material through interactive activities, such as case analysis, problem solving and/or discussions. Not only can you receive face-to-face instruction from your tutor to help you in your study, you will also have a chance to meet other learners and form study groups with them.
Day school and surgery
This course makes use of one day school to be arranged on a weekend. During the day school, teaching will consist of a mix of tutorial, spreadsheet analyses, group exercises, case studies, or guest-speaker seminars. The surgery is designed to reinforce your understanding of the materials presented in the supplementary lectures and respond to any questions you may have on the content of the supplementary lectures or course materials.
Online Learning Environment
This course is supported by the Online Learning Environment (OLE). You can find course materials and the latest course information in the OLE. Through the OLE, you can also communicate with your tutors, the Course Coordinator as well as fellow students. For details about the OLE and how to access it, please refer to the Online Learning Environment User Guide.
| Summary | |
FIN B850 Investment and Portfolio Management is a postgraduate-level course that covers the theoretical as well practical aspects of investment concepts. In particular, the first part of the course pays more attention to the concept of market efficiency, diversification and asset-pricing models. These are the essential frameworks in investment theory. The financial instruments such as common stocks, bonds, options and futures are extensively discussed in this course. The active vs passive styles of investment and portfolio management are presented along with case studies. Finally, portfolio evaluation performance and international settings of the investment environment are also discussed. Since this is a graduate level course, cases and practical examples that are related to Hong Kong investment settings are discussed extensively. As more and more data and other information can easily be obtained through financial newspapers and websites, we can use these data and information to work on our own investment decisions and portfolio management.
A note about the developer of this course
Dr Daniel W W Cheung was an Associate Professor, Banking and Finance Strand Leader of the School of Business and Administration, The Open University of Hong Kong. He has more than ten years of teaching experience at universities in Hong Kong, including The Chinese University of Hong Kong, Hong Kong Baptist University and Lingnan University. Dr Cheung's research interests include the performance of stock markets in Asian Pacific countries, the shocks to stock markets, and the performance measures of Asian mutual funds. Currently, Dr Cheung focuses on the relationship between US Federal fund rates and global asset markets. Dr Cheung has published more than a dozen articles in scholarly finance journals and professional handbooks. Dr Cheung holds a PhD in economics from Southern Illinois University at Carbondale, USA, specializing in International Finance.
| Deferment of studies | |
If you wish to defer your studies of this course until a later date, you should apply for deferment of studies. For the regulations governing deferment of studies, please refer to Section 14, 'Regulations for Admission, Registration and Maintenance of Status', in your Student Handbook. If you have applied for deferment of studies you should continue with your studies of this course and submit the required assignments until formal approval is given by the University. Should you have difficulties in submitting an assignment, you are advised to liaise with your Course Coordinator and apply for a TMA extension. Students who have been granted deferment of studies will not be allowed to submit TMAs due before the date that their application for deferment of studies is received by Registry.
| About the Lee Shau Kee School of Business and Administration | |
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