Finance 368
Macro Investment Analysis

Stanford Graduate School of Business
Professor William F. Sharpe
Spring, 1999
GSB Room 71, 10:00 - 11:30


The title of this course is Macro Investment Analysis. It can be considered a second course on portfolio management. We take a particular view of the portfolio management 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.

Official Course Description

F368. Macro-Investment Analysis This course focuses on investment decisions made by and/or for individuals, pension funds, endowments, and others and on analytic tools and empirical evidence that can help inform such decisions. It concentrates on situations in which the investment vehicles used by investors are primarily mutual funds, derivative securities, and other combinations of fundamental positions rather than individual securities such as specific stocks and bonds. In this view, investing is a multi-level process, with the investor often assisted by an analyst at the top level, a set of investment firms at a second level, and the securities of corporations and government agencies at yet lower levels. Subjects covered include: relationships between risk and return, implications of market efficiency, aspects of observed investor performance, dynamic allocation strategies, Monte Carlo simulation of investment results, and retirement planning.


Finance 328 (Portfolio Management) or permission of the instructor. To obtain the latter, you will need to have a knowledge equivalent to that in a standard investments textbook at or above the level of Fundamentals of Investments by Alexander, Bailey and Sharpe.


Several of the sessions will utilize Worksheets prepared by the instructor. 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 and in some of the reading material.


There will be a midterm and a final. The final will receive 150% of the weight assigned the midterm.




Grades will be based on examination scores with the possibility of adjustment by the instructor based on discussions in class.

Office Hours

Informal office hours will be held in the classroom after class, from 11:30 until 12:00 (as needed). Appointments for longer consultations in the instructor's office (Littlefield 381) can also be made at that time.

Supplemental reading

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.

Course Material

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 eventually 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.

Course Material


1. Introduction (Tuesday March 30)

Required Reading (before class)



2. Matrix Algebra (Thursday April 1)

Required Reading (before class)


3. MATLAB (Monday April 5)

Required Reading (before class)


4. Prices - I (Thursday April 8)

Required Reading (before class)


5. Prices - 2 (Monday April 12)

Required Reading (before class)


6. Probabilities (Thursday April 15)

Required Reading (before class)


7. Risk and Return (Monday April 19)

Required Reading (before class)


8. Optimization (Thursday April 22)

Required Reading (before class)


9. Factor Models (Monday April 26)

Required Reading (before class)


10. Midterm Examination (Thursday April 29)


11. Style Analysis (Monday May 3)

Required Reading (before class)


12. Equilibrium (Thursday May 6)

Required Reading (before class)


13. Performance Analysis (Monday May 10)

Required Reading (before class)


14. International Investment (Thursday May 13)

Required Reading (before class)


15. Investment Policies for Defined Benefit Pension Plans (Monday May 17)

Required Reading (before class)


16. Dynamic Strategies 1 (Thursday May 20)

Required Reading (before class)


17. Dynamic Strategies 2 (Monday May 24)

Required Reading (before class)


18. Individual Retirement Savings and Investment, 1 (Thursday May 27)

Required Reading (before class)


19. Individual Retirement Savings and Investment, 2 (Wednesday June 2)

Required Reading (before class)


Final Examination

Friday June 4,  2:00 - 5:00,  GSB 70 and 71

To see last year's examination, click here.