Professional Documents
Culture Documents
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Outline
Course overview
Overview of Equity
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Course overview
This course covers various aspects in equity investments. We look at: the environment in which investors, investment advisors, security analysts, and portfolio managers operate the techniques used to value assets and manage portfolios the risk-return relationship This course is not about teaching you how to make money or make you rich in 12 weeks rather, we examine how money was made
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Course objectives
We emphasize the following knowledge and skills throughout the course: Analytical ability: modeling skills that are key to making investment decisions Quantitative and computational skills: data analysis, probability evaluation of uncertain events Empirical knowledge of the equity markets, and empirical evaluation of real market data Fundamental analysis skills
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Course website
arts.uwaterloo.ca/~aghuang/AFM472/ Username: AFM472 Password: Invest A discussion forum will be set up on UWACE Your marks will be frequently updated on UWACE Preferred correspondence: directly email to aghuang@uwaterloo.ca
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Course materials
Lecture slides/notes Textbook: Bodie, Kane, Marcus, Perrakis and Ryan (BKMPR) Articles as posted on course website Recommended readings:
Chapter 6 of Trading and Exchanges: Market microstructure for practitioners, by Harris Quantitative Equity Investing: Technique and Strategies, by Fabozzi, Focardi, and Kolm (FKK)
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Course evaluation
Class project
You can choose either the Portfolio Project or the Stock Analysis Project Portfolio project: You use a trading platform to manage a hypothetical $1 million fund
Ocially runs from Oct. 1 to Nov. 15; but you can play with it from today as long as you acquire the account
Stock analysis project: You analyze the investment value of a rm acting as if you are a nancial analyst
Later at the course after the Mid-term
Due to resources limit, you cannot participate in both projects, and you must form a group with ve students (unless there are not enough students for roundup)
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A poster competition will be held for the project at the following tentative time: 16pm, Nov. 25, Friday (More details will be announced.) It will be judged by faculty members and/or industry experts Expectation:
A poster summarizing your project, and a brief presentation Q&A within a Panel If advanced to the second round, presentation in front of industry experts
Location TBD
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Class Participation
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You should only attend class at your assigned class section You should only form groups within your assigned class section You should form your group by This Friday 4:00pm send an email, with the subject line AFM472 Group, Section (your section number) to Meng Wang at
m89wang@gmail.com
The decision of which project your group will be doing must be made before Sept. 30 and notify Meng by Sept. 30, 4:00 pm as well.
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Starting next Monday, you will be seating at the assigned seat only. Please observe this rule ALL THE TIME. If you sit at somebody elses seat, he/she may earn your participation mark!
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The nancial system can be viewed from two dierent angles: Institutional perspective: the nancial system encompasses the markets, intermediaries, instruments, clients etc.; and Functional perspective: the nancial system facilitates the allocation and deployment of economic resources, across time and space and in uncertain environment.
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Stocks
Common stocks, aka equities, represent ownership of a corporation Two most important characteristics: residual claim, limited liability Sources of returns: dividends and capital gains; rT = PT + D T P0 P0
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The Crash of 1929 and the Great Depression October 29 over 4 days markets down 62% One-day panic in 1987 October 19, 1987 DJIA down 20%; TSX down 11% The current credit crisis starting 2007 The Internet bubble in the late nineties and the bear market of the new millennium
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Some Review
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Example
f (x ) = x 2 x 2
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Variance-covariance
Two variables: Var(aX + bY ) = a2 Var(X ) + b 2 Var(Y ) + 2ab Cov(X , Y ) Example: A portfolio consists of 30% of Stock X and 70% of Stock Y. The variance-covariance of X & Ys returns are: 0.09 0.03 0.03 0.04 Questions:
Whats the correlation of returns between X and Y? Whats the portfolios standard deviation?
ai Xi
i
PV =
t =0
(1 + r )t
CFt
Example: Assume that a stocks cash ow per share is 1.00, 1.10 and 1.20 for years 20112013 respectively, and 1.40 forever after 2013. Whats its ex-dividend price at the end of year 2011?
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BKMPR Chapters 2 and 3 dierent methods of market indexing placing orderswhat types? Short selling and margin trading
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