International Investment Management

Course goals

Learning objectives 
At the end of the course the student is able to:

• Explain the most important theoretical foundations of investment management;
• Create an optimal investment strategy for a client by analysing real-world data;
• Identify risks related to an international stock and bond portfolio; 
• Compute required returns on stocks and bonds and apply these to a valuation model; 
• Apply financial tools like options to create a desired risk-return profile for a portfolio;
• Work with valuation models for call and put options; 
• Value and apply forward contracts and futures contracts;
• Explain the concept of market efficiency and relate this to the field of behavioural finance.

Content

This course is part of the U.S.E. bachelor track in Finance. The course builds on Corporate Finance and Behaviour. It specifically expands prior knowledge on the fields of stock and bond valuation, portfolio formation, and the use and valuation of derivatives such as options and futures.

Over the past years, it has become increasingly important for individuals to take care of their own wealth accumulation. Many self-employed persons do not automatically set aside funds for their pensions, and for the workers who do build up pension benefits, pensions are becoming less secure. Therefore, everyone needs an understanding of the workings of financial assets to ensure their future financial security. The basic asset classes which belong to investor portfolios (i.e., stocks and bonds) are thoroughly discussed during the first part of the course. For these assets, we look into risk profiles, required returns and actual returns, diversification, the process of composing an efficient portfolio, etc. Due to globalisation, investment policies and possibilities get an increasingly international scope. The benefits of diversifying a portfolio over several countries is therefore also discussed during this course.   
 
The use of derivatives can mitigate the risks of an investment portfolio. The second part of the course deals with two key derivatives: options and futures. We discuss how they can be of help to investors who want to control portfolio risks, and look into valuation models of both types of derivatives. If these assets are priced incorrectly, so-called arbitrage opportunities arise, and we discuss how an investor can benefit from them.
 
Although the concepts discussed during this course can be applied to a student’s own portfolio, they are also building blocks of professional portfolios managed by asset managers and pension funds. In case studies, students will step into the shoes of investment professionals as they advise fictive clients about the best investment strategy. They base their advice on a numerical analysis of the clients’ wishes and financial situation, as well as the current market conditions. Examples are establishing an efficient portfolio of multiple assets, and creating and valuating a financial product using derivatives. The case studies used in the course are based on recent data and events, and will be discussed in tutorials.
Participants in the course will compete with their fellow students in an investment game, where they apply their newly learned investment strategies to manage a (hypothetical) 100,000 dollar investment fund.

Academic skills
This course focuses on the following academic skills:
 
Analytical skills

• Being able to identify, interpret and critically evaluate the main line of reasoning, independently and for complex problems.

Academic reasoning
For independent large economic and multidisciplinary problems/questions:

• Asking critical questions, having a curiosity-driven and critical attitude.
• Analysing questions from different perspectives.
• Identifying links between problems.

Assessment method

• Practical assignments (25%): In the first week of the course, students have to register for a project group via Brightspace. Together with this team, they compose an investment portfolio, and hand in a motivation for their portfolio. In addition, they have to hand in the solutions to the case studies and discussions of academic articles during different course weeks;
• A midterm exam on the first part of the course (fully multiple choice, 40% of the final grade);        
• A final exam on the second part of the course (partly multiple choice, 35% of the final grade).

Effort requirements

• Preparation of, and presence during tutorial meetings (6 out of 7);
• Participation in the investment competition, including a motivation of the initial portfolio choice

In case online access is required for this course and you are not in the position to buy the access code, you are advised to contact the course coordinator for an alternative solution. Please note that access codes are not reusable meaning that codes from second hand books do not work, as well as access codes from books with a different ISBN. Separate or spare codes are usually not available.