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IntesaBci S.p.A. Harvey Fuqua School of Business, Duke University, Durham, NC USA National Bureau of Economic Research, Cambridge, MA USA September 10-13, 2001 Course Description This course delivers the theory and the quantitative tools that are necessary for advanced application of the principals of global asset management.

• Grinold And Kahn 2000

The focus of the course is on strategic and tactical rather than passive asset management. To this end, we develop the fundamental concepts of asset valuation in a world with time-varying risk and risk premiums.

We also focus on the most recent advances quantitative forecasting methods. The course builds on three asset allocation concepts. We begin with the strategic asset allocation decision. This is a long-term posturing. Next we discuss tactical asset allocation.

This is short term changes in investment weights that capture targets of opportunities (sometimes called market timing). Finally, we focus on the bottom up decision. One unique feature of the course is that students are shown how to put a portfolio together from individual stocks (stock picking). Video Clips I have shot a series of short clips for both of my courses. NOTE: ALL VIDEO CLIPS ARE SERVED BY DUKE UNIVERSITY SERVERS.

Grinold And Kahn 2000

Webcast There is a webcast of many of the topics in this course. To view on demand, click here. Copyrights I reserve the copyright for all parts of the course. Any commerical reproduction of any course materials including lecture notes taken by students during the class is not allowed unless explicit permission is given by me. Hypertexts Harvey, Campbell R.

2001, Advanced Global Asset Management Various lecture notes on INTERNET. Campbell, John Y.

And Luis Viceira, 2000, Strategic Asset Allocation, manuscript, Lee, Wai, 2000, Advanced Theory and Methodology of Tactical Asset Allocation Fabozzi and Associates. Grinold, Richard C. And Ronald N. Kahn, 2000, Active Portfolio Management: A Quantitative Approach to Providing Superior Returns and Controling Risk, Second Edition, McGraw Hill. (approx $70) Outline and Recommended Reading Assignments Most of the reading for Advanced Global Asset Management will come from journal articles and working papers.

I recognize that it is impossible to read all of these articles in four days. One required reading is the preparation for the case discussion on Wednesday morning. I will assign each student to a group in order to focus the discussion. I will request to have CD-ROMs pressed for distribution before class begins Pre-class preparation Familiarize yourself with my website. General background.

Short biography of instructor, Campbell R. Harvey 2 minutes NOTE: ALL VIDEO CLIPS ARE SERVED BY DUKE UNIVERSITY SERVERS. Course introduction 2 minutes 1.

Monday September 10: Session 1 Course overview/current economic environment The goal of this session is to set the expectations for the course. I will review each of the topics to be covered. important. important.

2. Monday September 10: Session 2 Strategic Asset Allocation The focus is on the measurement of long-term expected returns, volatility and correlation. We will introduce the concept of tracking error. We will also examine survivorship bias.

We will specifically address the question of what the expected performance of major markets will be over the next five to ten years. Strategic forecasting of the US market. important.

Approaches to asset allocation. 5 minutes. The usefulness of dividend yield as a forecaster of long-horizon returns.

3 minutes. The risk free rate and mean-variance analysis. 4 minutes. Understanding mean-variance analysis. 6 minutes. important.

William N. Goetzmann, Philippe Jorion, 'Global Stock Markets in the Twentieth Century,' Journal of Finance, June 1999. important.

William N. Goetzmann, Philippe Jorion, 'Re-emerging Markets,' Journal of Finance, June 1999.

Graham and Campbell R. Harvey, 'Expectations of equity risk premia, volatility and asymmetry from a corporate finance perspective,. Graham and Campbell R. Harvey, 'Expectations of equity risk premia, volatility and asymmetry from a corporate finance perspective,. Campbell R. Harvey, 'The Drivers of Expected Returns in International Markets,' Emerging Markets Quarterly 2000. Monday September 10: Session 3 Tactical Asset Allocation I: Expected Returns We will focus this lecture on the development of short-term forecasting models for asset returns.

Predictability. Mean variance weights with dynamic trading strategies.

Building short-term tactical asset return forecasting models. 3 minutes. The usefulness of R-square in evaluating prediction models. 4 minutes.

Macroeconomic vs. Financial variables in asset return forecasting models. 3 minutes. Unconditional vs. Conditional expected asset returns. 4 minutes.

important. Risk identification regressions and prediction regressions. Local versus global variables in prediction regressions. Campbell R.

Harvey, 'Time-Varying Conditional Covariances in Tests of Asset Pricing Models,' Journal of Financial Economics 24 (1989): 289-317. (P3).

Campbell R. Harvey, 'The World Price of Covariance Risk,' Journal of Finance 46 (1991): 111-157.

(P10). Campbell R. Harvey, 'The Risk and Predictability of International Equity Returns,' with Wayne Ferson, Review of Financial Studies 6 (1993) 527- 566.

(P21). Campbell R. Harvey, 'Predictable Risk and Returns in Emerging Markets,' Review of Financial Studies (1995): 773-816. (P32) Also published as. Stefano Cavalaglia, 'Industry versus country factors'. Stefano Cavalaglia, D. Cho and Brian Singer, 'Further evidence on global pricing' 4.

Tuesday September 11: Session 1 Tactical Asset Allocation II: Comovement, Volatility, Skewness, Estimation Error This lecture explores the econometric techniques used for modeling volatilities and correlations. GARCH models will be explored along with alternatives such as ones based on exponentially weighted moving averages. We also investigate the implications of estimation error in portfolio selection. Estimation error in portfolio selection. important. Unconditional vs. Conditional volatility.

6 minutes. The specification of dynamic risk functions.

8 minutes. Excel program that estimates a GARCH(1,1) model. Campbell R. Harvey, 'Forecasting International Equity Correlations,' with Claude Erb and Tadas Viskanta, Financial Analysts Journal (1994): November/December 32-45. (P27) important.

Campbell R. Harvey, 'Do World Markets Still Serve as a Hedge?,' with Claude Erb and Tadas Viskanta, Journal of Investing (1995): Fall 23-46. (P28).

Campbell R. Harvey, 'The Cross-Section of Volatility and Autocorrelation in Emerging Markets' Finanzmarkt und Portfolio Management 9 (1995): 12-34. (P29). Campbell R. Harvey, 'Predictable Risk and Returns in Emerging Markets,' Review of Financial Studies (1995): 773-816.

(P32) Also published as. Campbell R. Harvey, 'Emerging Equity Market Volatility,' with Geert Bekaert, Journal of Financial Economics (1997): 43:1, January, 29-78. W14 Also published as. Skewness movie produced by a Fuqua 1998 graduate.

Skewness and asset management. 8 minutes. Campbell R. Harvey,'Autoregressive Conditional Skewness,' with Akhtar Siddique, Journal of Financial and Quantitative Analysis 1999, (P54) prev. W22.

Campbell R. Harvey, 'Conditional Skewness in Asset Pricing Tests,' with Akhtar Siddique, Journal of Finance 2000. W17. Campbell R. Harvey, 'The Cross-Section of Expected Risk Exposure,' with Akhtar Siddique, Working paper 5. Tuesday September 11: Session 2 Asset Pricing and Asset Allocation This lecture reviews the state of asset pricing theory, from the simple CAPM to multifactor models, in international finance.

Emphasis is placed on identifying and dymamically modeling risk. We start with average or unconditional exposure and work our way to more dynamic, time-varying models.

Overview: asset pricing and allocation. Is the world CAPM dead? 8 minutes. Is the variance of a well diversified portfolio the 'risk'? 8 minutes. Possible world risk factors. 8 minutes.

Risk models and predictive models in trading strategies. 8 minutes. Campbell R.

Harvey, 'Sources of Risk and Expected Returns in Global Equity Markets,' with Wayne Ferson, Journal of Banking and Finance (1994): 775-803. (P24) Also published as.

important. Campbell R. Harvey, 'The Risk Exposure of Emerging Equity Markets,' World Bank Economic Review (1995): 19-50. (P30). Campbell R. Harvey, 'The Risk and Predictability of International Equity Returns,' with Wayne Ferson, Review of Financial Studies 6 (1993) 527- 566. (P21).

Campbell R. Harvey, 'An Exploratory Investigation of the Fundamental Determinants of National Equity Market Returns,' with Wayne Ferson, in Jeffrey Frankel, Editor, The Internationalization of Equity Markets, (Chicago: University of Chicago Press, 1994, pp. (C1) Also published as. Fama and Kenneth R. French, 1992, 'The Cross-Section of Expected Stock Returns' Journal of Finance 47, 427-465. Fama and Kenneth R.

French, 1993, 'Common Risk Factors in the Returns on Stocks and Bonds,' Journal of Financial Economics 33, 3-56. Fama and Kenneth R. French, 1998, 'Value versus growth: The international evidence' Journal of Finance important. Campbell R.

Harvey, 'Conditioning Variables and the Cross-Section of Stock Returns,' with Wayne Ferson, Journal of Finance 1999, 54 1325-1360. W32 Also published as. important 6. Tuesday September 11: Session 3 Attributes and Asset Pricing A number of recent research papers have examined the role of attributes and expected returns. In this lecture we develop a framework to link these attributes to expected returns. Overview: predictability versus explanatory. Alpha strategies.

8 minutes. Alpha and market efficiency. 3 minutes. Campbell R.

Harvey, 'Fundamental Determinants of International Equity Returns: A Perspective on Conditional Asset Pricing,' with Wayne Ferson, Journal of Banking and Finance (1997): 21, 1625-1665. W7 Also published as. important.

Kent Daniel and Sheridan Titman, 1997, 'Evidence on the Characteristics of Cross-Sectional Variation in Stock Returns' Journal of Finance 52, 1-33. important. Eugene F. Fama and Kenneth R. French, 1992, 'The Cross-Section of Expected Stock Returns' Journal of Finance 47, 427-465. Fama and Kenneth R.

French, 1998, 'Value versus growth: The international evidence' Journal of Finance. Campbell R. Harvey,'Conditioning Variables and the Cross-Section of Stock Returns,' with Wayne Ferson, Journal of Finance 1999, 54 1325-1360. W32 Also published as. Wednesday September 12: Session 1 Asset Management Strategy: Fixed Income and Equity Now that we have some familiarity with the tools of asset allocation, we now explore the business strategy of asset management.

The class will be divided into the core groups at the fictional firm. I will play the role of the CEO. Very important class. Be ultra prepared. Asset Management Strategy Case. Asset Management Strategy Case Overview.

Wednesday September 12: Session 2 Stock Selection I: Screening Programs This lecture describes the state of the art techniques for selecting equity securities using multivariate scoring techniques. Stock selection overview. Stock selection and spread portfolio construction 8 minutes. Stock selection and market efficiency. 5 minutes.

Campbell R. Harvey, 'Stock Selection in Emerging Markets: Portfolio Strategies for Malaysia, Mexico and South Africa' with Dana Achour, Greg Hopkins and Clive Lang, Emerging Markets Quarterly 1999, Winter, 38-91. (P53). Campbell R. Harvey, 'Stock Selection in Malaysia' with Dana Achour, Greg Hopkins and Clive Lang, Emerging Markets Quarterly 1999, Spring, 54-91 (P55). Campbell R. Harvey, 'Stock Selection in Mexico' with Dana Achour, Greg Hopkins and Clive Lang, Emerging Markets Quarterly 3, Fall 1999, 38-75.

W46. Campbell R. Harvey, 'Firm Characteristics and Investment Strategies in Africa: The Case of South Africa' with Dana Achour, Greg Hopkins and Clive Lang, African Finance Journal 1, 1999, 1-68. W47.

Geert Rouwenhorst, 'Local return factors and turnover in emerging stock markets', Journal of Finance 54, 1439-1464. Geert Rouwenhorst, 'International Momentum Strategies' Journal of Finance 53, 1998, 267-284. Utpal Bhattacharya and Hazem Daouk, 'The World Price of Insider Trading' important. Utpal Bhattacharya, Hazem Daouk, Brian Jorgenson and Carl-Heinrich Kehr, 'When and Event is Not an Event: The Curious Case of an Emerging Market' Journal of Financial Economics, 55,1 69-102. Forthcoming, important Note, need to sign up for access to North Holland web site. 9. Wednesday September 12: Session 3 Stock Selection II: Regression Based Selection We introduce regression type models to select stocks.

We link these regressions to asset pricing theory and interpret the evidence that fundamental factors are able to identify good and bad expected returns opportunities. Firm specific attribute adjustment in cross-sectional screening. 5 minutes. Sorting versus regression. 5 minutes. Multivariate attribute strategies and developing scoring screens.

5 minutes. Campbell R. Harvey, 'Fundamental Determinants of International Equity Returns: A Perspective on Conditional Asset Pricing,' with Wayne Ferson, Journal of Banking and Finance (1997): 21, 1625-1665.

W7 Also published as. important 10. Thursday September 13: Session 1 International Hedge Funds The goal of this lecture is to introduce and to explain the growth in international hedge funds. We will also discuss high frequency trading strategies.

Campbell R. Harvey, 'Forecasting Foreign Exchange Market Returns via Entropy Based Coding: The Framework,' with Arman Glodjo. Thursday September 13, 2001: Session 2 Global Asset Management and Technology New technology and the Internet has caused what is best referred to as a 'structural' change in the asset management industry.

The purpose of this session is to brainstorm the future landscape of the asset management industry. Selected presentations:. Barter, Auction and Technology.Implications for Asset Management,. Forex in the Future: Implications for Asset Management. Ben Wright, Unlocking the C2C forex riddle. Course conclusions 8 minutes Supplementary Materials Goldman Sachs, 1999,. Robert Litterman and Kurt Winkelmann, Goldman Sachs, January 1996,.

Robert Litterman and Kurt Winkelmann, Goldman Sachs, January 1998,. Andrew Bevan and Kurt Winkelmann, Goldman Sachs, June 1998,.

Le and Robert Litterman, Goldman Sachs, December 1999,.