University of Texas at Dallas

School of Management

Finance 6310 Professor Day

Investment Management Spring 2005

Course Syllabus

Course Description:
This course examines a range of issues concerning the management of investment portfolios.
The course objective is to provide an understanding of the role of modern financial theory in
portfolio management and to present a framework for addressing current issues in the
management of financial assets. The concepts and techniques examined are also useful in
financial planning and personal investment decisions. Topics to be covered during the semester
include trading, valuation, active portfolio management, asset allocation, global diversification,
performance measurement, financial derivatives, and fixed income securities. Prerequisites:
Finance 6301 and Statistics 5311.

Course Requirements:
The requirements for Finance 6310 include a midterm and a final examination. In addition,
you are required to evaluate the performance of a simulated investment portfolio and complete
several required homework assignments. Your grade in Finance 6310 will be determined by the
total number of points accumulated during the semester from the following categories:
Homework Assignments 50
Portfolio Simulation Report 100
Midterm Examination 100
Final Examination 150

Required Textbook and Other Class Materials:

Class materials such as lecture notes and homework assignments will be available on my
web page, at http://wwwpub.utdallas.edu/~tday/. Most of the assigned journal articles listed in
the course outline and solutions to assigned homework will be available on the WebCT site for
the course. The required textbook for Finance 6310 is:

Zvi Bodie, Alex Kane and Alan J. Marcus. Investments. Richard D. Irwin, Sixth Edition,
2005.

Office Hours:
 My office is located in room SM 3.815. I can be reached by phone at 972-883-2743 or by e-
mail at tday@utdallas.edu . My official office hours will be from 5 P.M. to 6:30 P.M. (almost)
every Tuesday. In addition, I am pleased to schedule late afternoon and early evening
appointments on relatively short notice (usually that day).

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Homework:
Group discussion of homework problems is encouraged but each student must produce an
individual solution to each problem. Group construction of solutions to spreadsheet exercises is
prohibited. Each student is required to build a unique spreadsheet from the ground up for each
assigned spreadsheet exercise. All homework assignments should folded in half lengthwise with
your name on the outside and submitted to me prior to class or during the mid-class break.
Please do not fax or e-mail your homework to me as an attachment. In the event that you are
unable to attend a particular class, you may either mail your homework to me or else drop the
assignment by my office. Late homework will not be accepted.

Portfolio Simulation:
Each student is required to help manage a $1,000,000 portfolio. Students must work in
teams consisting of no more than four members and no less than two members. Each team
should register for an account with Stock-Trak (by e-mail or internet). The cost of each account
is $22.95. Trading will begin on January 24 and end on April 8. Account activity can be
monitored at www.stocktrack.com. Each team is responsible for keeping all records required to
track their weekly performance.
Each team must provide a “team roster” by January 26, along with a one paragraph
summary of their investment style (e.g., growth, value, income, or small cap), and a “preliminary
description” of the performance benchmark to be used in evaluating your investment
performance. Your portfolio must include long positions in at least ten but not more than
fifteen stocks, as well as at least one call option position of 10 or more contracts, and one put
option position of 10 or more contracts. No more than 20 percent of the portfolio should be
invested in any one security. UTD's rigid investor suitability requirements expressly prohibit
you from trading commodity futures and currencies. You are required to monitor the impact of
your option positions on your portfolio's risk on a week by week basis. Thus, you must keep
weekly records of the prices of these options and of the underlying stocks to account for the
impact of these options your portfolio's market risk.
The Performance Evaluation Report for each team is due on April 20. Your report should
not exceed four double-spaced pages (excluding exhibits); including a weekly appraisal of
portfolio risk and an estimate of the portfolio's risk-adjusted performance. You should provide
explicit comparisons of your portfolio's risk and return with both the market and your
performance benchmark. To this end, you should track weekly portfolio performance and risk.
Your grade will be based on the quality of your performance evaluation, and not on your
portfolio's actual performance. However, since money management is about beating your
benchmark, I will assign 20 bonus points to each member of the team with the best risk-adjusted
performance. The curve for assigning semester grades will be set prior to the assignment of any
bonus points.

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Examinations:
All examinations will be closed-book and closed-notes. The terms closed-book and closed-
notes mean that there are absolutely no circumstances under which students will be allowed to
refer to either their textbook, class notes, or any other class materials during examinations.
However, each student may bring one “crib sheet” to each exam. The contents of the crib sheet
is limited to formulas and must not include either worked examples or detailed notes. The crib
sheet must be hand written and fully contained on a single sheet of paper no larger than 8 1/2
inches x 11 inches. To help ensure compliance with the requirement that exams are closed-book
and closed-notes, students should not bring textbooks, notebooks, backpacks, or other items to
either the midterm or final examinations. Students who inadvertently bring textbooks,
notebooks, or backpacks to either the midterm or final examinations will be required to place
these items on the floor by the lectern at the front of the examination room. Students will not be
permitted to use cell phones or any other wireless devices or methods of communication during
examinations. Each student will be allowed to use a calculator during examinations. However,
the use of a calculator or other electronic device to store and access class materials such as
lecture notes and homework solutions during the examination will be treated as a serious
violation of the honor code. In the event of an approved conflict with the mid-term examination,
the final examination will be weighted more heavily (250 points) in determining your final
grade.

Classroom Decorum:
Classroom attire for students attending Finance 6301 may range from extremely casual (e.g.,
shorts and t-shirts) to business attire (e.g., a coat and tie). However, students attending class
must be dressed in good taste at all times. Students will be required to wear shoes or sandals at
all times during class. Further, students will not be permitted to wear hats, stocking caps,
scarves or other head coverings during class. I am pleased to make exceptions for any and all
headwear having a traditional link to the observance of religious custom. However, no
religious significance will be attributed to broad-brimmed hats, or to hats bearing the logos of
sports franchises (e.g., Texas Rangers), automotive products (e.g., Valvoline), vacation
destinations (e.g., Durango) or the like, whether such headwear is worn frontwards or
backwards.

Honor Code:
In accordance with the Rules and Regulations of the Regents of the University of Texas
System, students in Finance 6301 are expected to be above reproach in all scholastic activities,
including but not limited to homework assignments and in-class examinations. Many of the
homework problems and spreadsheet exercises that will be assigned during the semester have
been used previously at UTD by either myself or my colleagues. The term “above reproach in
all scholastic activities” specifically prohibits use of homework solutions or spreadsheet
templates from previous semesters, as well as any other materials that have previously been
developed at UTD or at other institutions of learning. The use of any prohibited materials or
violations of any and all rules governing the administration of in-class examinations will be
treated as a serious violation of the honor code. To maximize compliance with the honor code
during in-class examinations, talking among students is expressly prohibited and will be treated
4
as a serious violation of the honor code. Students sitting in adjacent seats during examinations
will be required to take different versions (covering similar conceptual issues) of the respective
midterm and final examinations. Attempts to circumvent the requirement that students sitting
adjacent to one another must take alternate versions of in-class examinations will be treated as a
serious violation of the honor code. The minimum penalty for any violation of the honor code
is a failing grade for the course. Additionally, I will recommend to the Dean of Students that
any student violating the honor code be placed on permanent academic suspension from the
University. Detailed information concerning the University Policy on Scholastic Dishonesty is
available on the University web page.

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Course Outline:
The articles listed below are either available on the internet, or can be obtained in elctronic
format or hard copy from the McDermott Library. For your convenience, links to internet
sources for most of these articles are included on the WebCT site for the course.

I. Introduction January 12
Bodie, Kane and Marcus, Chapter 4, pages 282-297 and 344-348.

Bodie, Kane and Marcus, Review (CFA Exam) Questions 21-31 on pages 307-309.

John Maynard Keynes. “The State of Long-Term Expectations.” Chapter 12 of

The General Theory, Macmillan, 1936.

Alan J. Marcus. “The Magellan Fund and Market Efficiency.” The Journal of
Portfolio Management, Fall 1990, 85-88.

II. Stock Trading and Benchmark Performance Indices January 19

Bodie, Kane and Marcus, Pages 45-58 and Chapter 3

Gary Gastineau. “Exchange-Traded Funds: An Introduction.” Journal of

Portfolio Management, Spring 2001, 88-96.

III. Dividend Discount Models, Valuation, and Long Run Performance January 26
Bodie, Kane and Marcus, Chapter 18

Jeremy J. Siegel. “The Nifty Fifty Revisited: Do Growth Stocks Ultimately

Justify Their Price?” Journal of Portfolio Management, Summer 1995, 8-20.

Jeremy J. Siegel. “Valuing Growth Stocks: Revisiting the Nifty Fifty.”

American Association of Individual Investors, 1998.

Arthur B. Laffer and Marc Miles. “Five Factors Distorting P/E Comparisons
Over Time.” Laffer Associates Supply-Side Investment Research, March 19,
2003.

IV. Asset Allocation, Expected Returns, and Time Diversification February 2

Bodie, Kane and Marcus, Chapters 5, 6, 7, and 8

Notes on Optimizing Asset Allocation (to be distributed)

Roger Ibbotson and P. Chen. “Long-Run Stock Returns: Participating in the

Real Economy.” The Financial Analysts Journal, January/February 2003, 88-
98.
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Roger Ibbotson and Paul Kaplan. “Does Asset Allocation Policy Explain 40, 90,
or 100 Percent of Performance?” Financial Analysts Journal,
January/February 2000, 26-33.

Mark Kritzman. “What Practitioners Need to Know…about Time

Diversification.” The Financial Analyst's Journal, January/February 1994, 14-
18.

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 V. Risk, Reward and Active Portfolio Management February 9
Bodie, Kane and Marcus, Chapter 27

Richard C. Grinold. “Real Alphas Don't Get Eaten.” The Journal of Portfolio
Management, Summer 1994, 9-16.

VI. Global Diversification and Performance Attribution February 16

Bodie, Kane and Marcus, Chapter 25.

VII. Performance Measurement February 23

Bodie, Kane and Marcus, Chapter 24.

Stephen L. Nesbitt. “Buy High, Sell Low: Timing Errors in Mutual Fund
Allocations.” Journal of Portfolio Management, Fall 1995, 57-60.

William F. Sharpe. “Asset Allocation: Management Style and Performance

Measurement.” Journal of Portfolio Management, Winter 1992, 7-19.

VIII. Midterm Examination March 2

IX. Options March 16

Bodie, Kane and Marcus, Chapters 20 and 21

X. Estimation of Beta and Tests of Asset Pricing Models March 23

Bodie, Kane and Marcus, Chapters 10, 11 and 13

Eugene F. Fama, Jr. “Asset Management: Engineering Portfolios for Better

Returns.” PCT Publishing, May 1998.

Peter L. Bernstein. “If Beta Is Dead, Where Is the Corpse.” Forbes (July 20,
1992), 343. (to be distributed)

N. Jegadeesh and S. Titman. “Returns to Buying Winners and Selling Losers.”

Journal of Finance 48, March 1993, 65-92.

XI. Market Efficiency, Investor Sentiment, and Analyst Recommendations March 30

Bodie, Kane and Marcus, Chapter 12

Robert Tumarkin and Robert F. Whitelaw. “News or Noise? Internet Postings

and Stock Prices” Financial Analysts Journal, May/June 2001, 41-51.
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Kenneth L. Fisher and Meir Statman. “Investor Sentiment and Stock Returns.”
Financial Analysts Journal, March/April 2000, 16-23.

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XII. Bond Yields, Default Premiums, and the Term Structure April 6
Bodie, Kane and Marcus, Chapters 14 and 15

Ed Altman and J. Bencivenga. “A Yield Premium Model for the High-Yield Debt
Market.” The Financial Analyst’ Journal, September-October 1995, 49-56.

Ed Altman and Guarav Bana. “Defaults and Returns on High Yield Bonds.” The
Journal of Portfolio Management, Winter 2004, 58-73.

XIII. Bond Duration and Interest Rate Sensitivity April 13

Bodie, Kane and Marcus, Chapter 16

XIV. Managing Interest Rate Risk for Fixed Income Portfolios April 20
Bodie, Kane and Marcus, Chapter 16

XV. Final Exam April 27

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Reading Assignments for Students using 5th Edition:
Students may use the 5th edition of Bodie, Kane, and Marcus (BKM) at their own risk. The
5th and 6th editions are similar; 95% of what you need for the course is included in the 5th
edition. However, these authors in particular are always careful to improve their book before
putting out a new edition. The important improvements that you should be aware of are noted
below.
I. Introduction January 12
Bodie, Kane and Marcus (BKM), Chapter 4, pages 259-279 and 293-297.
Bodie, Kane and Marcus, Review (CFA Exam) Questions 21-28 on pages 288-290.

II. Stock Trading and Benchmark Performance Indices January 19

BKM, Pages 44-58 and Chapter 3

III. Dividend Discount Models, Valuation, and Long Run Performance January 26
Bodie, Kane and Marcus, Chapter 18

IV. Asset Allocation, Expected Returns, and Time Diversification February 2

Bodie, Kane and Marcus, Chapters 5 (new stuff in 6th ed), 6, 7, and 8

V. Risk, Reward and Active Portfolio Management February 9

Bodie, Kane and Marcus, Chapter 27

VI. Global Diversification and Performance Attribution February 16

Bodie, Kane and Marcus, Chapter 25 (new stats in 6th ed.).

VII. Performance Measurement February 23

Bodie, Kane and Marcus, Chapter 24.

IX. Options March 16

Bodie, Kane and Marcus, Chapters 20 and 21

X. Estimation of Beta and Tests of Asset Pricing Models March 23

BKM Chapters 10, 11 (6th ed. much better) and 13 (6th edition better)

XI. Market Efficiency, Investor Sentiment, and Analyst Recommendations March 30

BKM, Chapter 12 (short discussion of behavioral theory in 6th ed.)

XII. Bond Yields, Default Premiums, and the Term Structure April 6
BKM, Chapters 14 and 15

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XIII. Bond Duration and Interest Rate Sensitivity April 13
BKM, Chapter 16

XIV. Managing Interest Rate Risk for Fixed Income Portfolios April 20
BKM, Chapter 16

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 University of Texas at Dallas
School of Management

Finance 6310 Professor Day

Investment Management Spring 2004
Reserve List
John Maynard Keynes. “The State of Long-Term Expectations.” Chapter 12 of
The General Theory, Macmillan, 1936.
Alan J. Marcus. “The Magellan Fund and Market Efficiency.” The Journal of
Portfolio Management, Fall 1990, 85-88.
Gary Gastineau. “Exchange-Traded Funds: An Introduction.” Journal of
Portfolio Management, Spring 2001, 88-96.
Jeremy Siegel. “The Nifty Fifty Revisited: Do Growth Stocks Ultimately Justify
Their Price?.” The Journal of Portfolio Management (Summer 1995), 8-20.
Arthur B. Laffer and Marc Miles. “Five Factors Distorting P/E Comparisons
Over Time.” Laffer Associates Supply-Side Investment Research, March 19,
2003.
Roger Ibbotson and P. Chen. “Long-Run Stock Returns: Participating in the
Real Economy.” The Financial Analysts Journal, January/February 2003, 88-
98.
Mark Kritzman. “What Practitioners Need to Know…about Time
Diversification.” The Financial Analyst's Journal (January-February 1994),
14-18.
Roger G. Ibbotson and Paul D. Kaplan. “Does Asset Allocation Policy Explain
40, 90, or 100 Percent of Performance?” Financial Analysts Journal
(January-February 2000), 26-33.
Richard C. Grinold. “Real Alphas Don't Get Eaten.” The Journal of Portfolio
Management, Summer 1994, 9-16.
N. Jegadeesh and S. Titman. “Returns to Buying Winners and Selling Losers:
Implications for Stock Market Efficiency.” Journal of Finance 48 (March
1993), 65-92.
Stephen L. Nesbitt. “Buy High, Sell Low: Timing Errors in Mutual Fund
Allocations.” Journal of Portfolio Management (Fall 1995), 57-60.
William F. Sharpe. “Asset Allocation: Management Style and Performance
Measurement.” Journal of Portfolio Management, Winter 1992, 7-19.
B. Barber, R. Lehavy, M. McNichols, and B. Trueman. “Reassessing the
Returns to Analysts' Stock Recommendations.” Financial Analysts Journal,
March/April 2003, 88-96.

13
Robert Tumarkin and Robert F. Whitelaw. “News or Noise? Internet Postings
and Stock Prices” Financial Analyst's Journal May/June 2001, 41-51.
Kenneth L. Fisher and Meir Statman. “Investor Sentiment and Stock Returns.”
Financial Analysts Journal (March/April 2000), 16-23.
Edward I. Altman and Joseph C. Bencivenga. “A Yield Premium Model for the
High-Yield Debt Market.” The Financial Analysts Journal (September-
October 1995), 49-56.

14
Jeremy J. Siegel. “The Shrinking Equity Premium.” The Journal of Portfolio
Management (Spring 1999), 10-17.

Kent Womack. “Do Brokerage Analyst's Recommendations Have Investment

Value?” Journal of Finance 51 (March 1996), 137-167.

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