Dr Vasanttilak Naik

This course is available on the Global MSc in Management, MSc in Accounting and Finance, MSc in Finance (full-time), MSc in Finance (full-time) (Work Placement Pathway), MSc in Finance (part-time), MSc in Finance and Economics, MSc in Finance and Economics (Work Placement Pathway), MSc in Finance and Private Equity, MSc in Finance and Private Equity (Work Placement Pathway) and MSc in Risk and Finance. This course is not available as an outside option.

Global MSc in Management (Accounting and Finance concentration only).

This course is not available as an outside option

Some familiarity with finance and accounting.

This course is an applied course on quantitative analysis of investment opportunities in public debt and equity markets.  We consider valuation of macro assets (such as government bonds, and diversified portfolios of equities and corporate bonds) as well as the valuation of equities of individual firms and of their  risky debt. We rely on theoretical concepts that students have learnt in their core courses (such as the CAPM, no-arbitrage pricing of option  and models of corporate debt as contingent claims on a firm’s asset)  and also examine in depth the historical behaviour of asset returns. The focus is on applying theoretical and empirical models of asset markets to  evaluate investment opportunities in realistic, sometimes, live situations. The course involves in –class analysis of investment  questions, extensive analysis of financial data, study of financial statements and analyst reports and two projects. The course is structured around the following topics:

1. Valuation of macro assets I: Global Yield Curves

2. Valuation of macro assets II: Global Equity  Indices

3. Valuation of macro assets III: Volatility and Credit Risk Premium

4. Identifying value  in individual equities: capturing breadth via quantitative screening systems

5. Digging deep in search of value: case studies on firm-level equity valuation 

6. Fair value of growth

7. Valuing single name c redit opportunities: investment-grade and high-yield debt

8. Valuation of the capital structure of banks

30 hours of seminars in the LT.

Students will be expected to complete 2 group projects. In the first project, students analyse and value the equity of a publicly traded  firm, evaluate its risks and make an investment recommendation. This project is done in two parts: first part focuses on a historical performance analysis of the chosen firm and second on a forward-looking valuation analysis. The second project  requires the students to study and critically examine the investment decisions and style of a well-known value investor.

Books

• Greenwald, B, Kahn, J., P. Sonkin, M. van Biema, Value Investing: From Graham to Buffett and Beyond, Wiley Finance, 2004.
• Koller. T., M. Goedhard, and D. Wessels (McKinsey and Company), Valuation: Measuring and Managing the Value of Companies, Wiley, 2015.

Academic Articles (Equities)

• Novy-Marx, R., “The Other Side of Value: The Gross Profitability Premium,” Journal of Financial Economics, 2013.
• Piotroski, J.D., “Value Investing: The Use of Financial Statement Information to Separate Winners from Losers,” Journal of Accounting Research, 2000.

Academic Articles (Risky debt)

• Collin-Dufresne, P., and R. Goldstein, “The Determinants of Credit Spread Changes,” Journal of Finance, 2001.
• Shumway, T., and B. Sharath, “Forecasting Default with the Merton Distance to Default Model,” Review of Financial  Studies, 2008.

Insights from theoretical models: based on articles such as

• Berk, J., R. Green and V. Naik, “Optimal Investments, Growth Options and  Security Returns,” Journal of Finance, 1999.
• Black, F. and J.  Cox, “Valuing Corporate Securities: Some Effects of Bond Indenture Provisions,” Journal of Finance, 1976.
• Merton, R., “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance, 1974.

Numerous articles written by well-known practitioners and policy makers

Project (50%) in the LT.
In class assessment (50%).