HARVARD SUMMER SCHOOL ECON S-192: INTRODUCTION TO CAPITAL MARKETS AND INVESTMENTS

SUMMER 2014 Dr. Shaikh A. Hamid Office Hours: sahamid@gmail.com Tues/Thurs: 3:00 to 4:00 pm 5:30 to 6:30 pm TA: TBA Room: TBA Tutorial: TBA

DRAFT - NOT FOR CLASS USE

COURSE DESCRIPTION

INTRODUCTION Investing in financial assets involves resolution of two major issues: asset allocation – investing in the broad asset classes (stocks, bonds, money market instruments, etc.), and security selection – finding attractive securities within each asset class. In this intensive course we will cover a great deal on the huge investment arena but time will not permit us to explore many other aspects. The idea is to make students life-long learners so they may sharpen their investing skill and style over time from among the many approaches to investing that have been proposed and used. This is one of the most important courses a student will have taken. Regardless of our professional involvement this course can benefit us directly by enabling us to efficiently invest our life’s savings. This course will also enable students to pursue a career as financial planner, financial analyst, stock broker, fund manager, or investment banker. COURSE OBJECTIVE This intensive course is designed to explore: • the capital markets and investment environment • concepts relating to investment decision making • organization of securities markets and securities trading • portfolio theory • asset pricing models • bond fundamentals and valuation • company analysis and equity valuation • derivative markets • international investing. The overall objective is to provide an introduction to the framework of modern portfolio theory and investment analysis with which one can critically evaluate alternatives relating to investments in financial securities and construct portfolios with desired risk/return characteristics. REQUIRED TEXT

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1. Text: Bodie, Kane, and Marcus, Essentials of Investments, 9th Edition, 2013, McGraw-Hill Companies, Inc. ISBN 978-0-07-803469-5; ISBN 0-07-803469-8.

2. Solutions Manual: ISBN-13: 9780077502249; ISBN-10: 0077502248. 3. Financial Calculator that you know how to use, preferably HP 10B II+ that I will show in class how to use.

If you use any other financial calculator, you have to learn how to use it based on accompanying manual. RECOMMENDED BOOKS 1. Peter Lynch and John Rothchild. Beating The Street. Simon & Schuster. 1994. 2. Peter Lynch and John Rothchild. One Up On Wall Street: How to Use What You Already Know To Make

Money in The Market, Simon and Schuster, 2000. 3. Robert G. Hagstrom. The Warren Buffet Way. John Wiley. 3rd Edition, 2013. 4. Roger Lowenstein. Buffet: The Making of an American Capitalist. Random House, 2008. 5. Janet Lowe, Benjamin Graham on Value Investing. Penguin Books, 1994. 6. Peter Bernstein, Capital Ideas, Free Press. 1992. 7. Peter Bernstein, Against the Gods, Wiley & Sons. 1996. 8. Burton G. Malkiel, A Random Walk Down Wall Street—The Time-Tested Strategy for Successful Investing,

W.W. Norton & Co., Inc., 2007. 9. Benjamin Graham, The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical

Counsel (Revised Edition), HarperCollins Publishers, Inc., 2006. 10. William J. Bernstein, The Four Pillars of Investing: Lessons for Building a Winning Portfolio, The McGraw-

Hill Companies, Inc., 2002. 11. Jeremy J. Siegel, Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term

Investment Strategies, 4th Edition, The McGraw-Hill Companies, Inc., 2008. 12. Benjamin Graham and David Dodd, Security Analysis, 6th Edition, The McGraw-Hill Companies, Inc., 2009. GRADING POLICY Final grading will be based on: Exam I.................................40% Exam II.................................35% Individual Project.................15% Class Participation................10% 100% EXAMINATIONS Examinations will be closed book, closed notes. You can bring a formula sheet to each exam. You can write on both sides of the sheet. You can explain the notations of formulas, but cannot solve problems or write conceptual notes. You will staple formula sheets to your exam. Exams will have few multiple choice conceptual questions, but the major part will be quantitative questions similar to the problems we will solve in the class, similar to the problem sets that will be posted in website, and similar to the problems assigned in syllabus from the end of chapters. Final exam is not cumulative. According to summer school policy, there will be no exception to final exam date and time. Use of mobile phones or devices that connect to internet will not be allowed during exams. INDIVIDUAL PROJECT

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You will track the Dow Jones Industrial Average (DJIA), the NASDAQ Index, and the 10-Year Treasury Note Yield daily for 3 weeks, and account for the causative factors impacting the large and small stock markets, and the Treasury bond market. The goal is to gain experiential learning of the factors that impact the markets, the direction and severity of the impact, and the extent to which the markets are correlated. This understanding will enable students to be better investors. Student subscription to the Wall Street Journal is available. You may also collect data and information from the internet: finance.yahoo.com, bloomberg.com, money.cnn.com, quote.com or other Internet sources listed in the text. The project is described in a separate handout. STUDENT CONDUCT Harvard Summer School accords utmost importance to appropriate student conduct. Summer School policies regarding academic conduct appear on the Summer School website and are explained in greater detail in the Summer School Student Handbook. Student should be especially particular about rules concerning plagiarism, the use of online resources, and the submission of the same paper for credit in more than one course without the written permission of all the instructors involved. Inappropriate conduct such as cheating in exam is taken very seriously. ATTENDANCE Students enrolled for credit are expected to attend all classes, take the midterm and final examinations, and complete all other required coursework. COURSE WEBSITE You will find lecture notes before each class in course website. You may print them and bring to class or you may use your laptop or other devices to access them. I will also upload other materials related to the course, including problem sets and solutions. DISABILITY SERVICES Harvard Summer School seeks to create a community accessible to faculty and students with disabilities. Services for students with disabilities are provided by Academic Services. The office of disability services identifies and provides appropriate support services and academic accommodations. HELPFUL GUIDELINES ⇒ Please be prepared to put in your very best. You will learn tools and techniques that will enable you to better

invest your or other people’s money. ⇒ If you get less than 50% in any component of the course, you have to make it up, or get an “E” grade overall. ⇒ Regular class attendance is of utmost importance. In case of absence caused by unavoidable circumstances,

arrange with friend(s) to collect handouts and get class lecture notes. Handouts of a class will not be available in the following class.

⇒ You will be responsible for any information given in class even if you are not present. This includes any

changes in the assignments or materials to be covered. ⇒ Regular attendance will account for part of the class participation grade. The other part will come from active

participation in class discussion.

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⇒ After we discuss a chapter, solve problems that are assigned in syllabus from end-of-chapters. Problems are not assigned from each chapter. Please try to solve on your own before you look at the solutions. Formation of study groups may be helpful.

⇒ Problems assigned will not be discussed in class (there will not be enough time for that). If you do not

understand the solution to a problem, please get help from TA or me during office hours. ⇒ Promptly bring to my notice any problem you encounter (before it is too late). Two-way communication is

vitally important for any joint endeavor (like this course) to be successful.

⇒ Assignments due should be submitted in hardcopy, and not electronically. ⇒ I will hold high expectations about you. I, and the TA, will be there all the way to help you realize the

expectations. My utmost hope is that you do the very best in this course that will enable you to be better investors and be ignited with the urge to be life-long learners.

TENTATIVE SYLLABUS

Session Date Topic Chap # Chap Problems 1 Jun 24 Overview of Investment Process 1 (Self-study) --

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2 26 3 Jul 1

Securities Markets Risk and Return

2 (Self-study) 4 (Self-study) 3 5

-- -- 12, 14-16, 18, 19, 23. 24 5-14

4 3 5 8 6 10 7 15 8 17

Efficient Diversification

Capital Asset Pricing & APT Efficient Market Hypothesis Behavioral Finance EXAM I Bond Prices and Yields

6 7 8 9 10

6-14 9, 10, 12-19, 30-33 11-18 -- 12--21, 23

9 22 Managing Bond Portfolio

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10--16

10 24 Equity Valuation 13

14--23

11 29

Futures Markets Options Markets Submit: Individual Project

17 15

1--4 4--7

12 31 Portfolio Performance Evaluation 18 5, 10, 11

International Investing EXAM II: Exam Week

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Notes: 1. Lecture notes/slides will be posted for each chapter in course website. 2. The individual project will be explained in the first class. 3. Solutions to assigned problems will not be collected in class for grading; the assignments are for preparation

for exam. You may want to compare your solutions with Solutions Manual available at Harvard Coop. 4. Additional problem sets and solutions will be posted in website. 5. Self-study chapters: Chapters 1, 2, and 4 are introductory, non-technical chapters; you can expect multiple-

choice conceptual questions in Exam I from these chapters; multiple-choice questions can also be from any of the other assigned chapters.