Department of Finance

University of Illinois at Urbana-Champaign

Professor Mao Ye Fin 511 Spring 2017

Portfolio Management

Office Hours: Mondays 3:30-4:30 P.M.

343K Wohlers Hall; phone 217-244-0474
Email: maoye@illinois.edu

TA: Jingwen Hua (jhua5@illinois.edu)

TA Office Hours: Wednesday 12:45-1:45pm and Friday 12:45-1:45pm in BIF
Atrium.

This course intends to give a thorough grounding in portfolio management for students who are already familiar
with financial markets. The first half of the course will cover Markowitz portfolio optimization, the Capital
Asset Pricing Model, and the Arbitrage Pricing Theory. The lectures will cover the theories, and the problem
sets will teach you how to apply these theories to manage portfolios.
The second half of the course will deal with recent developments in portfolio management. We will be spending
several weeks discussing what does and does not deliver extraordinary investment performance. We will also
deal with special techniques employing derivatives to enhance performance. The final part discusses the
evaluation of the performance of funds and fund managers and the impact of transaction costs.
This course is designed to help you solve real-world problems. We have two types of assignments. One type is
based on Chartered Financial Analyst (CFA) test questions or questions from Wall Street interviews. The other
type is a computer-based exercise that asks you to build portfolios and evaluate their performance. This
assignment will be completed in groups. You will put together two trial portfolios using UISES.
The TA for this class is Jingwen Hua. She will be helping me with the administration of the investment
simulation project and homework grading. You can email her if you have questions about homework.
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Required Textbook:
Zvi Bodie, Alex Kane, and Alan J. Marcus. Investments. 10th edition (cited as BKM).

1) The course will use COMPASS 2G.

2) Assignments include problem sets (PS) and investment simulation projects (IS). Problem sets must be
individual work. Investment simulation projects may consist of up to 4 people in my course (one person groups
are not unusual in previous years).
3) Most of the problems on the midterm and final will be similar to the problem sets, with the addition of some
multiple choice questions.
4) REQUIREMENTS AND GRADES:

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 Requirements:
Class Participation 5%
Investment Simulations 15%
Problem Sets 15%
Midterm: 25% (February 22, in class, no make-up midterm)
Final Exam: 40% (Time to be announced by the university)

Grading:
97-100 A+
93-96 A
90-92 A-
86-89 B+
81-85 B
77-80 B-
74-76 C+
70-73 C
65-69 C-
60-69 D
<60 F

5) Academic Integrity: Some of the assignments in this class are group work. However, you may not share
solutions with non-group members. "Sharing solutions" includes letting people have or see a copy of
your spreadsheets, memoranda, or written solutions. Also, you may not obtain assistance from people
who are not enrolled in the class. It is expected that all students enrolled in this course will behave in an
ethical and professional manner. Cheating, plagiarism, or other violations of academic integrity will not
be tolerated. Students should consult the Code on Campus Affairs, section 31, Academic Integrity.

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 COURSE SCHEDULE Readings in BKM
Lecture Topics based on 10th edition
1 Single asset statistics BKM ch. 5
2 Expected utility and risk aversion; Choice BKM ch. 6, 7.1, appendix 7B
under one risky asset
3 Markowitz Optimization BKM ch. 7
4 Sharpes single Index Model BKM ch. 8
5 The Capital Asset Pricing Model I BKM ch. 9
6 The Capital Asset Pricing Model II BKM ch. 9
7 Arbitrage pricing theory Efficient markets BKM ch. 10BKM ch. 11
8 Efficient markets Behavioral finance BKM ch. 11BKM ch.12
9 Empirical evidence on security returns, BKM ch.13
Fama-French Three-Factor Model
Midterm Cover the material until efficient markets
10 Behavioral finance BKM ch.12
11 Market Information Lab section Bond BKM ch. 14
12 Enter your trades for the investment
simulation
13 Advanced topics Term structure of interest BKM ch. 15
rates
14 Bond Term structure of interest rates Review BKM ch. 14BKM ch. 15
and problem solving
15 Term structure of interest rates Options I BKM ch. 15BKM ch. 20
16 Options I Options II BKM ch. 20BKM ch. 21
17 Options II Review and problem solving BKM ch. 21
18 Futures and other derivatives BKM ch. 23
19 Performance evaluation BKM ch. 24
20 Guest lecture: Doug Hoffman, CBOE
21 Asset allocation BKM ch. 27
22 Guest lectureAdvanced topics
23 International diversification BKM ch. 25
24 Advanced topics
25 Advanced topics
26 Pull your trades for your investment
simulation project
27 Review and problem solving
28 Presentations
The schedule for lectures is subject to adjustment due to the availability of the Market Information Lab and
guest speakers.
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