Course ID: | FINA 4330/6330. 3 hours. |
Course Title: | Trading Strategies and Financial Models |
Course Description: | An introduction to stock market anomalies and ways to predict
their strength, to profit from them, and to measure the risks
of doing such trading strategies. We consider the most
well-known empirical deviations from the CAPM and the most
popular ways to fix the CAPM to understand the nature of the
deviations. |
Oasis Title: | Trading Strat and Finan Models |
Prerequisite: | (FINA 3000 or FINA 3000E or FINA 3000H) and (MSIT 3000 or MSIT 3000E or MSIT 3000H or BUSN 3000 or BUSN 3000E or BUSN 3000H) and (FINA 4310 or FINA 4310E) |
Semester Course Offered: | Offered fall and spring semester every year. |
Grading System: | A-F (Traditional) |
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Course Objectives: | This course teaches a methodolgy for stock trading.
Specifically, the stategy involves learning about the most well-
known deviations from the CAPM(anomalies) and how to identify
new ones; learning how to form optimal trading strategies that
profit from the anomalies; learning how to measure risks of
these strategies and to evaluate their performance.
This course is open to all business majors so some of the
benefits of this class accrue to the students in our Student
Managed Investment Fund (SMIF), but that is for a limited
number of students. This is open to all business students who
have taken Investments and thus trading can be exposed to
Finance and Non-Finance majors not in SMIF (although this class
is beneficial to SMIF participants also). The student will gain
a deep understanding of many of the advanced trading techniques
used in financial markets. They will engage in the trading
techniques themselves. This has a direct benefit for those who
want to engage in trading as a career. However, to other
business workers (and government workers) an understanding of
the techniques, models, and effects of trading strategies can
have significant benefits in their decisions that are directly
or indirectly affected by the financial markets. |
Topical Outline: | I. Short Sales
a. How to do it
b. Short positions as "insurance"
c. Zero-investment portfolios
d. Shorting costs and future returns
e. Proxies for shorting costs
f. Shorting costs, uncertainty and future returns
II. Alpha
a. Definition and estimation
b. Alpha as trading strategy return
c. Reasons for non-zero alpha: higher risk and/or larger
losses in "bad times"
d. Alpha and non-traded factors
III. Anomalies
a. Market efficiency with frictions (example: filters?)
b. Definition and potential explanations
(rational/behavioral/data mining)
c. Value effect and size effect
d. Momentum and reversal
e. New issues puzzle
f. Seasonality (January/Monday effect)
g. Uncertainty and future returns (Ang et al., 2006,
Diether et al., 2002)
h. Accrual anomaly
i. Distress risk effect
IV. Options
a. Basics and hedging (delta, protective put, etc.)
b. Strategies with simple options (straddle,
cap/floor/collar, etc.)
c. Exotic options
d. Option-like securities (distressed equity,
callable/convertible bonds) |