NOTE: This is for information only. Many of the links shown here are no longer accurate
NOTE
This course is designed for students with access to the World Wide Web. Some material requires the use of a Netscape 3.0 (or above) browser and will not be accessible with other browsers.
The official title of this course is Portfolio Management, and the course will indeed cover the subject of portfolio management. However, we take a particular view of the process, with emphasis on (1) the decisions that must be made by and/or for the ultimate investor and (2) the analytic tools and empirical evidence that can help inform such decisions. As explained in the reading material, we prefer to use the more specific title Macro Investment Analysis to reflect this focus.
By the end of the second class, you will be expected to join a team of from three to five members. All exercises will be submitted by teams, and your grade will depend in large part on the quality of the work of your team. You are free to join with any other 2 to 4 members of the class for this purpose. You should make certain that at least one member of the team is reasonably facile with word processing and can move information to and from a web browser page.
Before class 3 a designated member of each team should send an email to the instructor listing:
Please send this email to:
wfsharpe@leland.stanford.edu
Each team will be required to complete assigned exercises according to a firm schedule. To facilitate this, each team will be given a site on the instructor's web server. For example, the address of the site for team 1 will be:
http://www-sharpe.stanford.edu/1
Access to each such site will require the team password that you choose. Do not give this password to anyone who is not a member of your team! All the material on your site is confidential and for the use only of your team. This includes your team's answers to the exercises. Under the honor code you are required to maintain this confidentiality both during and after the class, except as needed for oral presentations in class sessions.
Once your account is set up, you may access it with any browser. After you provide the correct name (Team1, etc.) and password, you will get an index of the pages on the site. For each exercise there will (eventually) be two files. For example:
Several of the exercises require the use of Worksheets prepared by the instructor. Independently, these may also prove helpful as aids to learning the material for the course. References to specific worksheets will be found in this course outline, in some of the reading material, and in some of the exercises.
The instructor will maintain a list of names of members of the class chosen randomly (with replacement). From time to time he will select the next person from the list to make an oral presentation to the class on some or all of the associated team's answers to the most recent exercise. This may be very short or relatively long, depending on the subject in question. For purposes of the presentation, the team's answer (e.g. EX1-2A) may be accessed in class. The presentation will be graded and used (if very good or very bad) to alter the person's course grade from that eventually assigned to the team in question.
An unexcused absence when called upon will be considered an extremely bad performance and may severely prejudice your grade in the course. You are entitled to one excused absence during the quarter. To obtain one, simply email the instructor (at wfsharpe@leland.stanford.edu) at least 24 hours before the class -- you need not give a reason. Excused absences will be given only under the most dire circumstances. If you wish to try to receive one, email the instructor at least 48 hours prior to the class. Unless you get an email from the instructor specifically authorizing the absence, it is unexcused.
Grades will be given to each team based on overall performance on the exercises. Each individual on the team will receive the team grade modified to account for the individual's performance(s) on any oral report(s).
The following books are recommended for those wishing to obtain foundation material, additional discussions, and/or another view on some of the subjects covered in the course.
Web sites that are particularly germane for specific topics are listed later. The following sites are of general interest vis-a-vis the subject of the course.
****** TO COME ***************
From time to time there will be news of interest (or at least relevance) for all the members of the course. Be certain to check the Course News Page from time to time. You may wish to bookmark it for easy access.
Some material will be found on the course site. Its address is:
This is a password-protected site. If asked, give your team name as your id and your team password.. Under the honor code, you are expected to keep this password confidential and to not divulge it to anyone not registered for the class.
At present, no printed textbook adequately covers the domain of this course. Instead, we will rely on the reading material described below. Material that is highlighted is only a click away via the web. The remainder of the material is included in the syllabus available to students registered for the course.
All the web material can be accessed from the instructor's site:
The instructor's goal is to provide all the material for this course on the web in a reasonably consistent and coherent form. Meanwhile, some of the subjects must be covered with material written in other forms for different audiences. To minimize confusion (the students' and also the instructor's), the latter's own publications were given a high priority in the selection process. Be assured that no royalties are involved.
In the list below, highlighted readings are on the web and can be obtained directly. The remainder must be obtained on paper.
The material listed for each session should be read before the date given. Those who have not read the material in advance may be confused, embarrassed and/or frustrated.
Due dates for exercises are shown. With the exception of Exercise 1, each team must retrieve its exercises from its own web directory on the instructor's server.
Each of the following exercises is contained in an Excel Workbook. To configure your Netscape browser to deliver these files directly to Excel, choose Options, General Preferences, Helpers from the main menu. Check to see if Application/x-excel is included in the list that is displayed. If not, select "Create New Type" with Mime Type = application and mime-subtype = x-excel. It is a good idea to list the extension xls as well. Then select "Launch the application" and type in the address of your Excel.exe file (or browse to find it).
To submit an excercise, insert your answers in the appropriate places, then email the resulting Excel workbook as an attachment in an email to the instructor.
Exercise 1: Prices and Probabilities
Exercise 2: Derivative Securities
Exercise 3: Risks, returns and optimization
Exercise 5: Dynamic Strategies
Exercise 6: Performance Analysis
Exercise 8: Retirement Planning
Required Reading (before class)
- Investment Approaches
- Financial Economics
- Models and Paradigms
- W.F. Sharpe, "The Parable of the Money Managers," Financial Analysts Journal, July/August 1976, p. 4.
- W.F. Sharpe, "The Arithmetic of Active Management," Financial Analysts Journal, January/February 1991, pp. 7-9.
Required Reading (before class)
Required Reading (before class)
Required Reading (before class)
Required Reading (before class)
Exercise 1 due (submit before class)
Required Reading (before class)
Required Reading (before class)
- Factor models -- copies of overheads
- W.F. Sharpe, "Some Factors in New York Stock Exchange Security Returns, 1931- 1979," Journal of Portfolio Management, Summer 1982, pp. 5-19.
Exercise 2 due (submit before class)
Required Reading (before class)
- Equilibrium - preliminary
- W.F. Sharpe, "Capital Asset Prices with and without Negative Holdings," Journal of Finance, June 1991, pp. 489-509.
- W.F. Sharpe, "Factor models, CAPMs, and the APT," Journal of Portfolio Management, Fall 1984, pp. 21-25.
Exercise 3 due (submit before class)
Required Reading (before class)
- W.F. Sharpe, "Integrated Asset Allocation," Financial Analysts Journal, September/October 1987, pp. 25-32.
- Andre Perold and W.F. Sharpe, "Dynamic Strategies for Asset Allocation", Financial Analysts Journal, January/February 1988, pp. 16-27.
- W.F. Sharpe, "Investor Wealth Measures and Expected Return," Quantifying the Market Risk Premium Phenomenon for Investment Decision Making, The Institute of Chartered Financial Analysts, 1990, pp. 29-37.
Required Reading (before class)
- A.F. Perold and E.C. Schulman, "The Free Lunch in Currency Hedging: Implications for Investment Policy and Performance Standards," Financial Analysts Journal, May/June 1988, pp. 45-52.
- W.F. Sharpe, "Hedging Currency Risk in an International Portfolio," Investment Technology, Spring 1992, pp. 1-43.
- Patrick Odier and Bruno Solnik, "Lessons for International Asset Allocation," Financial Analysts Journal, March/April 1993, pp. 63-77.
Exercise 4 due (submit before class)
Required Reading (before class)
- S. Benartzi and R.H. Thaler, "Myopic Loss Aversion and the Equity Premium Puzzle"Quarterly Journal of Economics, February 1995, pp. 73-92.
- Carlo Capaul, Ian Rowley and W.F. Sharpe, "International Value and Growth Stock Returns," Financial Analyst's Journal, January/February 1993, pp. 27-36.
Required Reading (before class)
- W.F. Sharpe, "Adjusting for Risk in Portfolio Performance Measurement," Journal of Portfolio Management, Winter 1975.
- W.F. Sharpe, "The Sharpe Ratio," Journal of Portfolio Management, Fall 1994, pp. 49-58.
Exercise 5 due (submit before class)
Required Reading (before class)
- "The AT&T Pension Fund", Graduate School of Business, Stanford University Case S-F-243. 1992
- W.F. Sharpe, "Asset allocation: Management style and performance measurement," Journal of Portfolio Management, Winter 1992, pp. 7-19.
- Setting the Record Straight on Style Analysis
- R.A. Grinold and D. Stefek, "Global Factors: Fact or Fiction?," Journal of Portfolio Management, Fall 1989, pp. 79-88.
- Morningstar's Performance Measures
Required Reading (before class)
Exercise 6 due (submit before class)
Speakers
- Charlie Jacklin is Director of Asset Allocation Strategies for Mellon Capital Management Corporation. He is responsible for overseeing domestic, international and global asset allocation strategies. He also engages in research related to the asset allocation process and is a member of the investment management and research committees. In addition, he is the primary client service officer for a number of asset allocation clients. Prior to joining Mellon Capital, Charlie was on the finance faculty of Stanford University's Graduate School of Business. At Stanford, he taught a variety of finance courses in the M.B.A., Sloan, and Ph.D. programs and did extensive research in finance and investments. In addition, he has been an instructor for the Stanford - London Business School International Investment Management Program, the Stanford Financial Management Program, and the Pacific Coast Banking School. For the academic year 1990 - 91, Charlie served as Senior Staff Economist for Financial Markets and Banking for the President's Council of Economic Advisers in Washington, D.C. Prior to joining Stanford in 1987, Charlie spent three years on the finance faculty at the University of Chicago's Graduate School of Business. From 1978 to 1980, as a management consultant with Ernst & Ernst, he provided financial planning and risk management consulting services to a variety of clients, primarily from the financial services industry. Charlie received his Ph.D. in Finance from Stanford University in 1985, an M.B.A. from the University of Illinois in 1978, and a B.S. in Mathematics, cum laude, from the University of Maryland in 1976. Charlie has published a number of papers on finance and investments in academic research journals, including the Review of Financial Studies, the Journal of Political Economy, and the Journal of Monetary Economics.
Required Reading (before class)
Speaker
- Kenneth Reid earned both a B.A. degree (1973) and an M.D.S. (1975) from Georgia State University, Atlanta. In 1982, he earned a Ph.D. from the University of California, Berkeley, where he was awarded the American Bankers Association Fellowship. From 1981 until June 1986, Mr. Reid worked as a consultant at BARRA in Berkeley, California. His responsibilities included estimating multiple-factor risk models, designing and evaluating active management strategies, and serving as an internal consultant on econometric matters in finance. Mr. Reid is a General Partner and Director of Research at Rosenberg Institutional Equity Management. His work is focused on the design and estimation of the valuation models and he has primary responsibility for analyzing the empirical evidence that validates and supports the day-to-day recommendations of the models. Patterns of short-term price behavior discussed by Mr. Reid as part of his Ph.D. dissertation have been refined and incorporated into RIEM's valuation and trading systems.
Required Reading (before class)
Exercise 7 due (submit before class)
Speakers
- Anne Casscells is the Managing Director of Investment Policy Research at Stanford Management Company. SMC is the investment arm of Stanford University, overseeing over $4 billion in endowment and other assets. Her responsibilities include asset allocation, spending policy, foreign exchange, tactical asset allocation, inflation hedging, arbitrage and distressed securities. Prior to joining Stanford she was a Vice President in the fixed income division of Goldman Sachs where she worked from 1985 to 1995. She holds an MBA from the Graduate School of Business at Stanford University and a BA from Yale University .
- Laurie Hoagland was appointed President and CEO of Stanford Management Company, Stanford University's $5 billion investment and real estate organization, in July 1991. For the previous 11 years, Mr. Hoagland had been a co-founder and partner in the investment management firm of Anderson, Hoagland and Company in St. Louis. He has also held positions as Vice President and Treasurer of Cummins Engine Company, Vice President and Portfolio Manager of the Irwin Management Company in Columbus, Indiana. Laurie was a director and a member of the Investment Committee of the Board of Pensions of the Presbyterian Church from 1981 to 1992 and currently serves on the Board of the Louisville Presbyterian Theological Seminary. He is a member of the Finance Committee of the Rockefeller Foundation and the Investment Committee of the Hewlett Foundation. Mr. Hoagland graduated from Stanford University with an AB in Economics in 1958, as a Marshall scholar received a BA in Philosophy, Politics and Economics from Oxford University in 1960,and earned an MBA from Harvard in 1962.
Required Reading (before class)
- Harvard Management Company 1994
- The Yale Endowment 1996
- Extracts from the Stanford University Annual Financial Report 1996
Speakers
- Bob L. Boldt is the Senior Investment Officer, Global Public Market Investments, of the California Public Employees' Retirement System (CalPERS). He is responsible for the management of more than $100 billion of CalPERS assets invested in equity and debt markets around the world. Mr. Boldt has more than 20 years of investment management experience. Prior to joining CalPERS, Mr. Boldt held senior management positions at the Northern Trust Company, the American National Bank of Chicago, Concord Capital Management, and Scudder, Stevens & Clark. He has written extensively on investment topics and is a former recipient of the Graham and Dodd Award from the Financial Analysts Federation. Mr. Boldt earned an undergraduate degree in engineering and an MBA from the University of Texas at Austin. He is a Chartered Financial Analyst. CalPERS is the nation's largest public pension fund and the third largest in the world. The System provides retirement and health benefits to more than one million employees and their families.
- Patricia Pinkos is a Principal Investment Officer, Internal Equities, for the California Public Employees' Retirement System (CalPERS). Her responsibilities include management of the $40 billion domestic equity index fund and special projects related to asset allocation formulation and implementation. She formerly managed the Manager Relations unit for CalPERS, which oversees external managers in the area of active domestic equity, international equity and fixed income and currency overlay. Prior to joining CalPERS in 1987, she had her own business advising individuals and small pension funds on financial planning issues. She holds an MBA from Golden Gate University and a BA from the University of Michigan in mathematics. She is a Chartered Financial Analyst.
Required Reading (before class)
Exercise 8 due (submit before class)
Speaker
- Elizabeth Obershaw is Director, Benefit Fund Investments at Hewlett-Packard, with investment management responsibility for HP’s U.S. retirement and employee welfare plans, which currently represent over $3 billion in assets. In this capacity, Ms. Obershaw and her staff are responsible for determining asset allocation policies, selecting investment managers, and managing a $500 million in-house equity portfolio. The plans’ investments are broadly diversified and include U.S. large and small capitalization stocks, international stocks, venture capital and other private equities, U.S. fixed income, global fixed income and real estate. Later in 1997, her group will also assume responsibility for structuring the investment options in HP’s 401(k) program. Ms. Obershaw received a BA in Economics from the University of California at Los Angeles in 1981 and an MBA from the Stanford University Graduate School of Business in 1983.
Required Reading (before class)
This page may change from time to time. It is expected that you will check it periodically. Ignorance of its latest content is not an excuse for lack of preparation.