Bus. Econ. 271 -- Portfolio Theory
J. Sell
Spring1998

First Examination Outline and Review

Outline of Materials Covered prior to first Examination. Note: You should be able to discuss the following concepts clearly and completely without the use of notes and talk about why each is important to the study of Marketing. You should also be able to give examples of the concepts other than the ones given in class.

I. What is Investment?

A. Definition

1. Economic vs. Financial Investment
2. Investment and Gambling

B. Returns and Yields

1. Returns, relative returns, holding period yields
2. Ibbotson's historical data

C. The Financial Press -- Stock, Bond, and T-Bill characteristics

D. Measuring historical returns and yields

1. Arithmetic vs. Geometric means
2. Standard Deviation

E. Risk

1. Definition and Examples
2. Measuring it using the normal distribution

II. Market Efficiency

A. Why Important
B. Measuring market activity

1. How measure differ.
2. Sample Calculations

a. The Dow-Jones Industrial Average
b. Standard & Poors 500
c. The "Unweighted" (equally-weighted) index.

C. The Supply of and Demand for Securities

1. Compared to other goods
2. The individual investor and the market
3. Liquidity vs. Information-motivated transactions

D. Evidence on Market Efficiency

1. What does it mean to be an efficient market?
2. Technical vs. Fundamental Analysis

a. What each is.
b. Why the difference is important.

3. Some empirical evidence

a. Kraus & Stoll
b. Roberts
c. Fama (Runs test)

4. Filter and Trading Rules

a. What they are
b. How they work
c. Some examples and tests

5. Fama's criticism

E. Implications of Market Efficiency

1. From an economic point of view
2. In terms of measuring risk

F. Cootner's Model

III. Fixed-Income investments

A. The economic theory of price
B. The Theory of interest.
...

Updated by Jws on 11 February 1998.