Portfolio Theory - Part 2
This eCourse consists of three modules.
Terms like “investment” or “investing” are used in the media every day without anyone actually defining what exactly they mean. Module 1 adopts a different perspective and will set you out on the road to understanding the fundamentals of investment and its management. Beginning with a discussion of the concept of investment as a whole and the various perspectives on it, the module goes on to deal with a variety of crucial concepts and issues that must be grasped by all investment industry professionals.
The decision to choose one security over another is a two-stage approach. The first stage requires the expected return to be calculated while the second stage requires the volatility of that expected return to be calculated. Module 2 shows how investors can pick the combination of expected return and risk (variance/standard deviation) that best matches their risk preference.
One of the key factors when building a theoretical framework required for making rational financial decisions and policies is an understanding of the concept of market efficiency. This concept is one of the most widely studied and contentious areas in the financial world today. Module 3 explains in detail the characteristics of an efficient market, describing the random walk theory and examining the different forms of the efficient market hypothesis and their various implications for analysts, management and investors. It also discusses the concept of adaptive market hypothesis and why it is becoming a popular alternative to EMH.
On completion of this course, you will be able to:
- Identify a number of different perspectives on investment and some of the motives for investment
- List the key characteristics of various asset classes
- Recognize the risk-return trade-off and the main risks to which investors are exposed
- Calculate the expected return for an individual security
- Calculate the risk of an individual security
- Recognize the concept of efficient markets
- Discuss the Random Walk Theory
- Identify the different levels of the EMH
- List the various implications of the EMH
- List the main research findings that either support or contradict the different levels of the EMH
- Recognize the concept of adaptive markets
Module 1: Investment - An Introduction
Topic 1: Investment Basics
Topic 2: Investable Assets
Topic 3: Investment Risk & Return
Module 2: Risk & Return - An Introduction
Topic 1: Calculating the Expected Return
Topic 2: Calculating Volatility (Risk)
Module 3: Efficient Markets
Topic 1: Efficient Market Hypothesis (EMH)
Topic 2: Market Efficiency: The Evidence
Topic 3: Adaptive Markets Hypothesis