Investment Management

Keywords (for me): 

• Chapter 1: 

  • CAPM

  • Fisher effect

  • Fixed income/debt, common stock/equity, derivative securities

  • Efficient market

  • Passive management & active management

  • ADRs - American Depository Receipts-

  • Mortgage pass-through securities

  • Unbundling CFs

• Chapter 17: 

  • Fundamental analysis - a top-down approach

  • Technical analysis

  • Key economic variables (GDP, consumer sentiment, unemployment rate, interest rate & inflation, budget deficit)

  • Fiscal Policy & Monetary Policy

  • Business cycles - indicators

  • Sector rotation 

  • Diamond framework - 5 forces

• Chapter 18 - Valuation Models

  • Book Value - liquidation value & replacement cost

  • Expected holding period return

  • Required return

  • Intrinsic value vs. market value

  • Dividend discount model

  • No growth model

  • Constant growth model 

  • Life cycles and multistage growth model

  • Price-to-earnings, price-to-book, price-to-cash-flow, price-to-sales ratios and their comments

  • Free Cash Flow to Firm Approach 

  • Free Cash Flow to Equity Approach

• Chapter 2:

  • Dow Jones Industrial Average Index

  • Price-Weighted Index

  • S&P Index, NASDAQ Composite, NYSE Composite, Wilshire 5000

  • Market-Value-Weighted Index

  • Equally-Weighted Index

• Chapter 3: 

  • IPO, SEO (primary, secondary shares)

  • Investment banking: Underwriters, underwritten agreement, standby agreement, best effort, private placements

  • Market types: Dealer (NASDAQ), Auction (NYSE)

  • Order types: Market executed immediately, price contingent (limit orders, stop orders)

  • Trading mechanisms: 

    • Dealer markets (NASDAQ, Apple - more competitive markets)

    • Electronic communication networks (ECNs) (BIST-Turkish Stock Exchange)

    • Specialists markets  (NYSE, IBM - more monopolistic): it has a "limit order book"

• Chapter 6:  

  • Trading costs

  • Buying on margin

  • Maintenance margin

  • Margin call 

  • Short sell

  • Risk aversion

  • Indifference curves and utilities 

  • Capital allocation of risky and risk-free assets 

  • Complete portfolio

  • Opportunity sets 

  • Using leverage or not while investing

  • Capital market line

• Chapter 7: 

  • Diversification of portfolios

  • Definition of covariance, correlation, expected return, standard deviation, mean, variance (standard deviation of returns, correlation coefficients)

  • Markowitz Portfolio Selection Model

  • Efficient Frontier

  • Capital allocation lines

  • Optimal Risky Portfolio

  • Risk pooling, risk sharing and risk in long run 

• Chapter 8:

  • READING REGRESSION RESULTS AND UNDERSTAND THEM

  • Single Index Model

  • CAPM Model

  • Multi Index Model

• Chapter 9:

  • CAPM

  • The Efficient Frontier & Capital Market Line

  • Systematic risk & unsystematic risk 

  • Market risk premium 

  • Expected return & beta relationship

  • Difference between beta & standart deviation of return 

• Chapter 10:

  • Law of one price

  • Single factor model 

  • Multifactor model

  • Arbitrage Pricing Theory -APT-

  • Well-Diversified Portfolios

  • Two factor model

  • Work of Chen, Roll and Ross (No exchange risk and other important factors)

  • Fama-French Three Factor Model

  • CAPM Decomposition

• Chapter 11:

  • Efficient Market Hypothesis

  • Event Studies

  • Joint hypothesis testing

  • Market efficiency types: weak-form, semi-strong, strong

  • Predictors of broad market returns (Fama and French, Campbell and Shiller)

  • Small firm effect (SMB)

  • January effect (in the U.S.)

  • Insider trading

• Chapter 15:

  • Bond pricing

  • Definition of yield, maturity, yield curve, yield-to-maturity

  • Interes rates: spot rate, short rate

  • Forward rates and forward contracts

  • Interest rate uncertainity

  • Term structure theories

    • Expectations theory

    • Liquidity premium theory 

• Chapter 16:

  • Bond price convexity

  • Coupon rates 

  • Duration of bond

  • Bond duration vs. bond maturity

  • Correction for convexity (understand the graph)

  • Regular bonds, callable bonds, zero-coupon bonds

  • Immunization of interest rates

  • Net worth immunization

  • Cash flow matching-dedication

  • Active management: swapping strategies

    • Substitution swap, intermarket swap, rate participation swap, and pure yield swap

  • Horizon analysis

  • Contingent immunization

• Chapter 24:

  • Dollar weighted returns

  • Time-weighted returns 

  • Performance evaluation measures: Sharpe index, Treynor measure, Jensen's measure (Jensen Alpha), Information ratio, M^2 measure, T^2 (Treynor) Measure

  • Market Timing

  • Style analysis

• Chapter 4:

  • Net asset value

  • Managed investment companies (Open-End and Close-End)

  • Hedge funds

  • Mutual funds

  • Funds of funds - diversification can hurt the investor 

  • Exchange-traded funds

  • Foreign exchange risk