Investment Theory and Application is designed to give cadets an appreciation of the theoretical underpinnings for investing as well as the way investors think about and approach the markets today. This course pulls from concepts in statistics, microeconomics, econometrics, accounting, and finance. Broadly, the course is organized into three interconnected blocks. Before studying the movement of prices and the measure of risk and return in the markets, investors need to understand how to value (price) a security (stock, bond, or option). After understanding these basic valuation techniques, investors can begin appreciating the relationship between risk and return in the markets and how that builds to some of the foundational theories and models in finance: modern portfolio theory, the efficiency market hypothesis, and the capital asset pricing model. Finally, after building the theoretical story of efficient markets, we will explore the counterpoint. The course concludes with a rigorous final project, where students wade through imperfect information to propose and defend recommendations for the current active portfolio within West Point's Investment Club.
This course will draw upon the theory and methods of microeconomics and applied econometrics to investigate how individual and institutional investors optimize investment portfolios to maximize risk-adjusted returns. The course is organized into five blocks: (i) financial markets and institutions; (ii) optimal asset allocation with uncertain returns; (iii) modem portfolio theory, which explores asset pricing and market efficiency; (iv) security valuation; and (v) portfolio management - how individual and institutional investors manage investment portfolios to maximize risk-adjusted returns and achieve efficient diversification, given preferences for risk.
This course will draw upon the theory and methods of microeconomics and applied econometrics to investigate how individual and institutional investors optimize investment portfolios to maximize risk-adjusted returns. The course is organized into five blocks: (i) financial markets and institutions; (ii) optimal asset allocation with uncertain returns; (iii) modem portfolio theory, which explores asset pricing and market efficiency; (iv) security valuation; and (v) portfolio management - how individual and institutional investors manage investment portfolios to maximize risk-adjusted returns and achieve efficient diversification, given preferences for risk.
