Walter A. Haas School of Business
U.C. Berkeley
Fall 2000

BA235: Advanced Topics in Financial Institutions and
Financial Markets: Equity Portfolio Management

Professor Terry A. Marsh

Office:   Faculty 491

Phone:   (510) 642-1651

Course Description:

This is meant to be a relatively hands-on course in portfolio management. The objective is to give you an overview of the variety of portfolio management in practice, and to fit into an "Investments" framework. We will have outside speakers chosen to span much of the investment space; they will include several hedge funds, an emerging market fund, a large institutional manager, a REIT, a risk arbitrageur, a fixed income specialist, a plan sponsor, a well-known portfolio consulting firm, along with scheduled visits to Charles Schwab Investment Management and Franklin Funds. I will be doing my best to tie all this together!

The course requirement is a short paper describing a portfolio management strategy ("product") at a level that could be presented to a pension plan sponsor. Grades will be based on this and class attendance.

There is no readings packet for the course. From time to time, "Economist-type" articles will be distributed as a basis for discussion.

The class will meet once per week, on Fridays from 2:00 pm - 4:00 pm in Room C330, or off-campus when announced in advance.

Last Revised: August 27, 2000

ã Terry A. Marsh, 2000

Background References

1: Introduction

The Economist, 1993, "Investment Management," November 27, Survey: pp. 1-30.

Fung, William and David Hsieh, 1997, "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Paradigm and Duke University.

The Economist, 1996, "Cruising in Neutral," December 14.

2: Security Return and Risk Models

Sharpe, William F., 1984, "Factor Models, CAPMs, and the AB(P)T," Journal of Portfolio Management, 11(1), Fall, 21-25.

Sharpe, William, ???, Asset Management,……………..

Swiss Bank Corporation, 1995, "The Multi-Factor Model for the Swiss Stock Market," Economic and Financial Prospects, 3, 2-9.

The Economist, 1998, "Welcome to Bull Country," July 18, 21-23.

Kocherlakota, Narayana,1996, "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, 34, March, 42-71.

3: Equity Portfolio Management Tools

Roll, Richard, 1977, "Critique of Asset Pricing Theory Tests - I: Appendix," Journal of Financial Economics, 4, 158-176.

Roll, Richard, 1993, "A Mean/Variance Analysis of Tracking Error," Journal of Portfolio Management, 18(4), Summer, 13-22.

Black, F., and Robert Litterman, 1992, "Global Portfolio Optimization," Financial Analysts Journal, 48, 28-43.

4: Passive (Indexation), Active, and "Semi-Active" Approaches; Derivatives Overlays

Sharpe, William F., 1992, "Asset Allocation: Management Style and Performance Measurement," Journal of Portfolio Management, 18(2), Winter, 7-19.

Admati, Anat R., and Paul Pfleiderer, 1995, "Does it all add up? Benchmarks, Specialization, and the Compensation of Active Portfolio Managers," Working Paper, Stanford University, June.

5: Overview of "Alpha" Strategies

Lee, Charles M.C., and Bhaskaran Swaminathan, 1998, "Price Momentum and Trading Volume," Unpublished Paper, Cornell University, June 23.

Hong, Harrison, Terence Lim, and Jeremy Stein, 1998, "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Working Paper, Stanford Business School.

Jegadeesh, Narasimhan, and Sheridan Titman, 1993, "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," The Journal of Finance, XLVIII(1), March, 1993, 65-91.

McQueen, Grant, Michael Pinegar, and Steven Thorley, 1996, "Delayed Reaction to Good News and the Cross-Autocorrelation of Portfolio Returns," Journal of Finance, LI(3), July, 889-919.

Lakonishok, J., Andrei Shleifer, and R. Vishny, 1994, "Contrarian Investment, Extrapolation, and Stock Returns, Journal of Finance, XLIX(5), December, 1541-1578.

Leibowitz, Martin L., and Stanley Kogelman, 1992, "Franchise Value and the Growth Process," Financial Analysts Journal, January-February, 53-62.

6: "Behaviorial Finance" Models

Odean, Terry, 1996, "Do Investors Trade Too Much?", Unpublished Paper.

Odean, Terry, 1996, "Are Investors Reluctant to Realize their Losses?", Unpublished Paper. Forthcoming: Journal of Finance.

Daniel, Kent, and David Hirshleifer, 1997, "A Theory of Overconfidence, Self-Attribution, and Security Market Under- and Over-reactions, Working Paper 97-1, School of Business, The University of Michigan.

Fama, Eugene F., 1997, "Market Efficiency, Long-Term Returns, and Behaviorial Finance, Unpublished Paper, University of Chicago, June.

7: Overview of "Alpha" Strategies based on "Superquant" (Genetic, Neural Net, etc.)

Alexander, Carol, and Ian Giblin, 1994, "Chaos in the System: Can Chaos Theory provide a way of Predicting Movements in Financial Markets?" Risk, 7(6), June, 71-76.

Business Week, 1994, "Suddenly, Number Theory Makes Sense to Industry," June 20, pp. 172-173.

Barron’s, 1995, "New Brains: How "Smart" Computers are Beating the Stock Market," February 27, pp. 29-33.

Pitt, John, 1995, "When your Investment Horizon is MINUTES," Global Finance, June, 38-40.

8: Trading Costs

Belonsky, Gail M., and David M. Modest, 1993, "Market Microstructure: An Empirical Retrospective," Preliminary Bibliography, U.C. Berkeley, 9/27.

Keim, Donald B., and Ananth Madhaven, 1995, "Execution Costs and Investment Performance: An Empirical Analysis of Institutional Equity Trades," Working Paper, University of Pennsylvania, February 23.

9: International Investing -- Segmentation

Tesar, Linda L., and Ingrid Werner, 1993, "International Equity Transactions and U.S. Portfolio Choice," Working Paper, Stanford University, November.

King, Mervyn, Enrique Sentana, and Sushil Wadhwani, 1994, "Volatility and Links between National Stock Markets," Econometrica, July, 62(4), 901-933.

Heston, Steven L., and K. Geert Rouwenhorst, 1994, "Does Industrial structure explain the Benefits of International Diversification," Journal of Financial Economics, 36, 3-27.

Marsh, Terry, and Paul Pfleiderer, 1997, "The Role of Country and Industry Effects in Explaining Global Stock Returns," Working Paper, U.C. Berkeley, August 28.

Coval, Joshua, and Tobias Moskowitz, 1997, "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Unpublished Paper, University of Michigan.

Coval, Joshua, and Tobias Moskowitz, 1997, "The Geography of Investment: Are There Gains to Investing Locally?," Unpublished Paper, University of Michigan.

Grossman, Sanford J., 1995, "Dynamic Asset Allocation and the Informational Efficiency of Markets," Journal of Finance, L(3), July, 773-787.

10: International Investing --- Currencies & International Term Structures

Black, Fischer, 1990, "Equilibrium Exchange Rate Hedging," Journal of Finance, 45(3), July, 899-907.

LeBaron, Blake, 1994, "Technical Trading Rule Profitability and Foreign Exchange Intervention," Working Paper, University of Wisconsin, October 1994.

Guillsume, Dominique M., Michel M. Dacorogna, Rakhal R. Dave, Ulrich A. Muller, Richard B. Olsen, and Olivier V. Pictet, 1995, "From the Bird’s Eye to the Microscope: A Survey of New Stylized Facts of the Intra-daily Foreign Exchange Markets," Working Paper, Olsen & Associates, March 22.

Bilson, John, 1992, "Hedging Currency Risk" and "Discretionary Currency Hedging," Presentation to Berkeley Program in Finance Seminar, The Resort at Squaw Creek, April 5-7.

11: Institutional Background --- Custodial, etc.

Background: Merton, Robert C., 1994, "Financial Innovation and the Management and Regulation of Financial Institutions," Working Paper #95-018, Harvard Business School, September.

TAM:JW 9/3/98