FIN 6312

Portfolio Management
School of Management
UTD
THE
UNIVERSITY
Chris Kirby OF TEXAS
Spring 2005 AT DALLAS

Course Syllabus

Description
Despite the less than stellar performance of investment professionals in the Wall Street Journal’s “Darts vs.
Experts” competition, few would suggest that throwing darts at the financial pages is actually a good way to select
securities for your portfolio. In this course we will consider the tools, strategies, statistics and history of portfolio
optimization in competitive securities markets. Upon finishing the course you should have developed a good
understanding of basic portfolio theory and have acquired the quantitative skills necessary to apply modern
investment techniques. You will be familiar with a wide range of investment philosophies along with typical
practices and institutional arrangements of equity money managers.

Prerequisites
In preparing the lectures for this course I will assume that you have mastered the material in Fin 6301, MECO 6201,
and STAT 5311. In particular, I expect you to have a good understanding of the basic ideas of finance such as the
time-value of money, net present value, portfolio risk and return calculations, and diversification. I also expect you
to have a good grasp of basic statistical concepts including sample statistics, hypothesis testing, and multiple
regression analysis. Using class time to review these concepts is inefficient and takes time away from new and
more interesting topics. If you are a little rusty on these concepts, then I expect you to refresh your memory as
necessary during the first few weeks of the semester. Presumably you are in the course because you are interested in
learning new material, so I will teach it accordingly.

Textbook and Readings

1. F. Reilly and K. Brown, Investment Analysis and Portfolio Management, Seventh Edition, South-Western
Publishing, 2003. This text that is widely regarded as a standard reference by practitioners in the investments
industry. It offers good coverage of most topics without requiring a strong mathematical background. Many of
the end-of-chapter problems are from CFA exams given in prior years.
2. Lecture notes, which are posted as PDF files on the course web site (http://www.utdallas.edu/~ckirby). These
should be downloaded prior to class.
3. Selected articles available via from the journals collection of the McDermott Library. These articles are strictly
optional. The readings list is lengthy and many of the articles are relatively ambitious for undergraduate students
who have little or no prior background in the investments. Nonetheless, I strongly recommend that you read
them if you are potentially interested in getting into money management or related area as a career. Almost all of
the articles are from practitioner publications like the Financial Analysts Journal and the Journal of Portfolio
Management. Although I do not expect you to understand everything discussed in them, you should be able to
pick up on the main ideas as they relate to material covered in the lectures. At a minimum they should convince
you that the topics covered in the course are at the forefront of current practice in the industry.

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Assessment
Your course grade will be determined by three to four homework assignments and a course project. These
components will be weighted as follows:
Assignments 60%
Project 40%
The assignments must be done individually. Assignments or projects turned in after the due date will be penalized
20% for each day (or part thereof) that they are late. There will be absolutely NO EXTRA CREDIT.

Project
The project is to done in groups with three to five members. How you run your group is not my concern. It is up to
you to decide on the composition of the group and to make sure that each group member does his or her fair share of
the work. I will not get involved in intra-group disputes. If for some reason you are unhappy with your current
group, then you always have the option joining a different group.

Your task is to develop a proposal for managing a portfolio of stocks in a particular investment style. This should be
done in a five to ten page report (not including tables and exhibits). The target audience for your report is a skeptical
high-net-worth individual who has considerable investment experience. You report needs to convince this
individual that your ideas will work and that you have the skills to execute the idea. I will provide more details as
the semester progresses. The project is due at the beginning of class on April 19th. Each group will have 10 to 15
minutes to present their investment strategy to the rest of the class. The presentation will count for 1/3 of your
grade on the project (i.e., 13.3% of your overall course grade).

Academic Honesty
I expect everyone to be above reproach in all their academic activities, which includes but is not limited to
homework assignments, projects, and examinations. Some of the homework assignments for this semester may have
been used in previous semesters. However, you are prohibited from using homework solutions from previous
semesters, as well as any other materials previously developed at UTD or other institutions of learning. In addition,
you are prohibited from working on the assignments with others or discussing the assignments with anyone other
than me. The use of prohibited materials or collaboration with others on the assignments will be treated as a serious
case of academic dishonesty and will be dealt with in accordance with UTD policies and procedures

Requests for Additional Credit

If you feel that I’ve made a mistake in the grading one of the assignments of the course project, then you may
resubmit it with a request to rectify the perceived error. The assignment or project should be returned along with a
detailed written explanation of why you think you deserve additional credit. In going over the assignment or project
I will focus primarily on the portion in dispute; however, I reserve the right to correct any errors that I find,
regardless of whether this causes your score to go up or go down.

Contact Details
Office location: SM 3.806
Office hours: Monday, 11:001m to noon
Phone: (972) 883-4777
E-mail: ckirby@utdallas.edu

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 Tentative Schedule of Classes

Session Date Topic

Investment Fundamentals
1 Jan 11 Capital Markets and Securities Trading
2 Jan 18 Asset Pricing and Market Efficiency
3 Jan 25 Valuing Individual Stocks
4 Feb 1 Introduction to Mutual Funds
Passive Portfolio Strategies
5 Feb 8 Mean-Variance Portfolio Selection
6 Feb 15 Benchmarks and Tracking Error
7 Feb 22 Risk Models and Performance Evaluation
Active Portfolio Strategies
8 Mar 1 Active Management and Style Analysis
Mar 8 Spring Break
9 Mar 15 Value and Growth Strategies
10 Mar 22 Earnings Money Management
11 Mar 29 Momentum Investing
12 Apr 5 Testing Active Trading Strategies
13 Apr 12 Project Q&A
14 Apr 19 Project Presentations

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 Reading List

Session Suggested Readings

Session 1
Capital Markets and Securities Trading Reilly & Brown, Chapters 1, 2, 3

A. Ineichen, “Twentieth Century Volatility,” Journal of

Portfolio Management, Fall 2000

P. Jorion, “Global Stock Markets in the Twentieth Century,”

The Journal of Finance, Jun 1999

Session 2
Asset Pricing and Market Efficiency Reilly & Brown, Chapters 6, 8

A. Marcus, “The Magellan Fund and Market Efficiency,”

Journal of Portfolio Management, Fall 1990

M. Rubinstein, “Rational Markets: Yes or No? The Affirmative

Case,” Financial Analysts Journal, May/Jun 2001

Session 3
Valuing Individual Stocks Reilly & Brown, Chapter 11

M. Hirschey, “How Much Is a Tulip Worth,” Financial Analysts

Journal, Jul/Aug 1998

J. Siegel, “The Nifty Fifty Revisited: Do Growth Stocks

Ultimately Justify Their Price?,” Journal of Portfolio
Management, Summer 1995

Session 4
Introduction to Mutual Funds Reilly & Brown, Chapter 25

K. Arteaga , “New Equity Funds: Marketing and Performance,”

Financial Analysts Journal, Nov/Dec 1998

Session 5
Mean-Variance Portfolio Selection Reilly & Brown, Chapter 7
Allocation
R. Ibbotson, and P. Kaplan, “Does Asset Allocation Policy
Explain 40, 90, or 100 Percent of Performance?,” Financial
Analysts Journal, January/February 2000, 26-33.

B. Conrad, “Asset Allocation Strategies and Their Effect on

Risk and Return from 1996 to 2000,”; Journal of Financial
Planning, Mar 2002

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Session 6
Benchmarks and Tracking Error Reilly & Brown, Chapter 5

G. Gastineau, “Exchange-Traded Funds: An Introduction,”

Journal of Portfolio Management, Spring 2001, 88-96.

M. Wang, “Multiple-Benchmark and Multiple-Portfolio

Optimization,” Financial Analysts Journal, Jan/Feb 1999

J. Bogle, “An Index Fund Fundamentalist,” Journal of Portfolio

Management, Spring 2002

Session 7
Risk Models and Performance Evaluation Reilly & Brown, Chapter 26

M. Melnikoff, “Investment Performance Analysis for Investors,”

Journal of Portfolio Management, Fall 1998

Session 8
Active Management and Style Analysis Reilly & Brown, Chapter 17

C. Ellis, “The loser's game,” Financial Analysts Journal,

Jan/Feb 1995

J. Bogle, “The Implications of Style Analysis for Mutual Fund

Performance Evaluation,” Journal of Portfolio Management,
Summer 1998

J. Davis, "Mutual Fund Performance and Manager Style,"

Financial Analysts Journal, Jan/Feb 2001

Session 9
Value and Growth Strategies R. Ibbotson, “Growth vs. Value Investing: And the Winner is...”
Journal of Financial Planning, June 1997

P. Ahmed, “Style Investing: Incorporating Growth

Characteristics in Value Stocks,” Journal of Portfolio
Management, Spring 2001

Session 10
Earnings Money Management E. Keon, “Is the U.S. Market Irrationally Exuberant?,” Journal
of Investing, Fall 1998

D. French, “The Market Valuation of Earnings and Real

Growth,” Journal of Investing, Spring 1998

Session 11
Momentum Investing Reilly & Brown, Chapter 16

E. O'Neal, “Industry Momentum and Sector Mutual Funds,”

Financial Analysts Journal, Jul/Aug 2000

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