Investment Management

Course Number 1446

Professor Kenneth Froot,
Fall, 29 Sessions
Exam

Career Focus

Students pursuing careers within the investment community and financial markets, including professional money management careers (i.e., with hedge funds, mutual funds, investment consulting firms, etc.), investment banking careers, institutional sales and trading careers, and general financial careers. Students interested in the dynamics of financial markets and in the analysis of investments and securities trading in competitive financial markets.

Educational Objectives

The course studies financial markets, principally equity markets, from an investment decision-making perspective. The course develops a set of conceptual frameworks and analytical tools, and applies these to particular investments and investment strategies chosen from a fairly broad array of companies, securities, and institutional contexts. The focus is on adding value across the spectrum of decisions ranging from position-taking in particular securities, to portfolio risk management, to the delegation to and oversight of professional investment managers. In conjunction, the course explores the competitive dynamics among investment organizations, products, and markets.

Content and Organization

The course is organized around essentially six components:

Valuation (of the aggregate equity markets, of individual company shares, and of a variety of derivative instruments written on these and other underlying risks such as commodities, currencies, and interest rates);

Arbitrage (as a valuation tool, as an investment strategy, as an implementation strategy);

Information (for valuation, implied in security prices, "private" versus "public");

Risk management (diversification, for example, into emerging markets and other asset classes, dynamic asset allocation, hedging);

Implementation (choice of instrument or vehicle, trade execution, short selling, management of costs and taxes, monitoring and governance); and

Institutional (clients, such as individuals, pension funds, and endowments; vehicles, such as mutual funds, closed-end funds, hedge funds, and instruments; markets, such as the "upstairs" block markets versus the organized stock exchanges versus the index futures markets; and intermediaries, such as money management organizations).

The materials consist of a textbook, cases, prospectuses, newspaper clippings, and other miscellaneous readings. A number of classes are built around visits from a variety of distinctive and well-known money managers.