Investment in Equities in Non-efficient Markets

2020/2021

Academic Year

ENG

Instruction in English

5

ECTS credits

Delivered by:

School of Finance

Type:

Elective course

When:

2 year, 2 module

Course Syllabus

Abstract

The course consists of two equal parts. The first part of the course is devoted to bubbles on financial markets as the most serious manifestations of their irrationality. The students learn the history of the major bubbles, theories explaining them, preconditions and signs of a bubble’ formation, and types of economic objects that are the best platforms for bubbles formation. The second part of the course deals with the value investing approach that hedges against investing in bubbles and losing money. According to numerous studies, investment in value shares generates abnormal return. Value investing strategy is the best performing strategy among a wide list of quantitative strategies as concluded by Morgan Stanley. During the course we learn the results of value investing studies, the names and returns of the best value investors, their investment principles and requirements to the companies suitable for investment. In a practical part of the course the student search for the companies that are good investment targets both from the point of view of their operational results and valuations. The course has both theoretical and practical applicability.

Learning Objectives

• The major aim of the course is to familiarize students with realities of the financial markets and theories explaining them and to teach them the basics of rational approach to investment in shares that will help them to grow as investors, financial analysts or asset managers in the future.

Expected Learning Outcomes

• The students will become familiar with the behavior of financial markets and value investing

Course Contents

• Part 1. Inefficient financial markets
  Topic 1. Efficient markets hypothesis (EMH) and its disproves. The Black Swan consept. EMH and behaviorism. Topic 2. Risk and return in the financial markets in the USA and globally. Topic 3. Market anomalies of XVIII century (tulipmania, the South Sea bubble, the Mussissippi company. Topic 4. The financial bubbles of XIX century (the emerging markets bubble of the 1830-s, the railway mania and others). Topic 5. The bubble of the first half of the XX century (Florida real estate boom, the great prosperity of the 1920-es. Topic 6. The bubble of the second half of the XX century (the Japanese bubble, the technological boom, the mortage bubble). Topic 7. Phycological and sociological theories of herd behavior and their applicability of the explanations of financial bubbles. The information cascade theory. Topic 8. The Economic and financial models of financial bubbles. Topic 9. Signs and preсonditions of a financial bubble.
• Part 2. Value investing
  Topic 1. Introduction into value investing. Topic 2. The long-term competitive advantage. Investing in value and growth stocks (empirical results). Topic 3. Winning strategies in the stock market. Do they exist? Topic 4. The EMH and the phenomenon of Warren Buffett. Тopic 5. A construction of investment portfolio based on value investing principles. A practical exercise (students’ presentations).

Assessment Elements

• Essay
• Presentations
• Attendance

Interim Assessment

• Interim assessment (2 module)
  The following formula is used for evaluation of students: Gfinal= 100%* Gaccumulated The accumulated grade is calculated as follows: Gfinal= 35%* Gessay + 35%* Gpresentations + 30%* Gatttendance, where Gessay – the average grade for two essays (10 points each) Gpresentations – the average grade for two group presentations (10 points each)

Bibliography

Recommended Core Bibliography

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Recommended Additional Bibliography

• George J. Stigler. (1961). The Economics of Information. Journal of Political Economy, 213. https://doi.org/10.1086/258464
• Lones Smith, & Peter Norman Sørensen. (n.d.). Observational Learning.
• Louis K. C. Chan, Narasimhan Jegadeesh, & Josef Lakonishok. (1996). Momentum strategies.
• R. Mehra, & E. Prescott. (2010). The equity premium: a puzzle. Levine’s Working Paper Archive.