Business 3059 Investment Management

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Investment Management

• Business 3059 Investment Management
• Prof. Nikola Gradojevic, Ph. 343-8419
  (nikola.gradojevic_at_lakeheadu.ca)
• Web http//foba.lakeheadu.ca/gradojevic/3059/
• Office Ryan Building RB-1035(Hours
  Wednesdays, 230-400PM)
• Lectures-Mon/Wed 100PM-230PM at AT-1006 (ATAC
  building)
• Main Textbook Investments, 5th Canadian
  Edition by Bodie, Kane, Marcus, Perrakis and
  Ryan, McGraw-Hill Ryerson, 2005.

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Investment Management

• Additional Texts
• Spreadsheet Modeling in Investments, 2nd
  Edition by Holden, C., Prentice Hall, Upper
  Saddle River, New Jersey, 2005.
• A Random Walk Down Wall Street, 9th Edition by
  Burton G. Malkiel, W.W. Norton Company, 2007.
• A Non-Random Walk Down Wall Street by Andrew W.
  Lo and A. Craig MacKinlay, Princeton University
  Press, 2001. (Chapters 1, 2, 9, 11, 12)

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Plan Topics

• The week of
• Sept. 10 Course Orientation and Introduction to
  Investments
• The Investment Objective (Chapter 1)
• Markets and Instruments (Chapter 2)
• Sept. 17 How Securities are Traded (Chapter 3)
• Sept. 24 Mutual Funds and the Institutional Enviro
  nment (Chapter 4)                            

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Plan Topics

• Oct. 1 Concepts and Issues Return, Risk and
  Risk Aversion (Chapter 5)
• Portfolio Selection (Chapter 6)
• Oct. 8 The Capital Asset Pricing Model (Chapter
  7)
• Empirical Evidence on Security Returns
  (Chapter 10)
• Oct. 15 Index Models and the Arbitrage Pricing
  Theory (Chapter 8)
• More - Empirical Evidence on Security Returns
  (Chapter 10)

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Plan Topics

• Oct. 22 Market Efficiency (Chapter 9)
• Oct. 29 Bond Prices and Yields (Chapter 11)
• Nov. 5 Security Analysis (Chapter 14)
• Technical Analysis (Chapter 16)
• Nov. 12 Options and Other Derivatives
  Introduction (Chapter 17)
• Option Valuation (Chapter 18)
• Nov. 19 Futures and Forward Markets (Chapter
  19)

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Plan Topics

• Nov. 26 International Investing (Chapter 22)
• Note The exact final exam date will be
  announced later.
• Show the course outline
• http//foba.lakeheadu.ca/gradojevic/3059/outline_3
  059_2007.pdf

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Bodie Kane Marcus Perrakis Ryan
Investments
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Chapter 1
The Investment Objective
9
Chapter Summary

• Objective To provide a general overview of the
  investment environment
• Short History of Investing
• The Investment Objective
• Real vs. Financial Assets
• Financial System Clients and their Needs
• The Agency Theory

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Short History of Investing

• The Crash of 1929 and the Great Depression
• One-day panic in 1987
• The technology bubble in the nineties and
• The bear market of the new millennium

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Investments Financial Assets

• Essential nature of investment
• Reduced current consumption
• Planned later consumption
• Real Assets (income-generating)
• Assets used to produce goods and services
• Financial Assets (define allocation of income)
• Claims on real assets

12
Financial System Clients and Their Needs

• Household Sector
• Primary Need Invest Funds (taxes, risk)
• Business Sector
• Primary Need Raise Funds (bonds, stocks)
• Government Sector
• Primary Need Raise Funds (bonds regulate)
• Foreign Sector
• Primary Need in Canada Invest Funds

13
Role of Financial Assets and Markets

• Preservation of capital and speculation
• Consumption Timing
• Allocation of Risk
• Separation of Ownership (new partners)

14
The Financial System and Innovation

• Financial Intermediation (middleman, pooling,
  diversification, expertise)
• Investment Banking and Brokerage Services
• Financial Engineering
• - Pass-through securities
• - Derivative securities
• Responding to Regulation Taxes
• - Eurodollars, zeroes, split shares

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Securitization

• Offers opportunities for investors and
  originators
• Changes in financial institutions and regulation
• Improvement in information capabilities

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Financial Engineering

• Repackaging Services of Financial Intermediaries
• Bundling and unbundling of cash flows
• Slicing and dicing of cash flows
• Examples strips, CMOs, dual purpose funds,
  principal/interest splits

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Analysts, Auditors

• Accusations of inadequate disclosure
• Investment dealers
• Accounting audits
• Managers

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and the Agency Problem

• Agency Theory the principal-agent relationship
• Investors
• Board of directors
• Management

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The Right Approach

• Diversification
• Across sectors
• Across asset classes
• Across countries (Globalization)
• Information and patience