Introduction to Financial Markets - Market Strategy

None. The course is introductory in nature. “Introduction to financial markets – market strategy” would be helpful, but is not required.

The course looks into the potential and the risks of various asset classes and investment strategies in financial markets. It specifically discusses the strategies with the best mix of opportunities and risks for private investors. It turns out that this question can only be answered when a number of constraints are known, the most important of which are investment goals, investment horizon, psychological make-up, expertise and resource limitations.

The volume of subject matter is so large, that only the most relevant issues can be covered in a single semester. The course therefore does not use a standard lecture format. Instead, every session begins with an introductory talk on one or two exemplary topics, which is followed by a student working session coached by the professor.

Students will be asked before the course to give their input on the subjects covered. The provisional list of subjects is as follows:

1. Overwhelmed by choices: Opportunities and temptations for private investors in financial markets
2. From Ponzi and Madoff to Hypo Real Estate and Kaupthing Bank: How not to fall for frauds and pipe dreams
3. Where are the investors’ yachts? A complex investment only guarantees a ton of fees
4. Financial markets as a mind game: Do you see an investment as a bet (bigger fool theory) or do you see it as a share of a productive asset?
5. Know thyself before investing: Financial markets as the most expensive way to go on a self-awareness trip
6. Behavioral investing: overconfidence, cowardice and greed as the reasons why most investors earn way less than the total market
7. Market timing, technical analysis and chimpanzees with darts: attempts at beating the market and the reasons why that is so difficult
8. From front running via Harry Markowitz to Eugene Fama’s five factors: how a loaded casino turned into a reputable, well-researched market
9. From Benjamin Graham to Howard Marks: Investment classics and the invaluable lessons they teach
10. If you could get rich from investment tips, the purveyors would keep them to themselves: Respectable, well-informed sources of financial market information
11. All calamity stems from people’s inability to sit quietly in their chamber (Pascal): Plea against actionism and tips for structured approaches
12. Luck or ability, misfortune or incompetence? The role of chance, the decision problem and risk management as an indispensable tool
13. The dose makes the poison: Why Warren Buffett is the third-richest person in the world and two Nobel laureates for financial theory almost blew up the markets

The course teaches the economic principles of financial market strategies, aiming to demonstrate chances and risks of, and successful approaches to, investing. The course also encourages an interdisciplinary approach to the matter at hand. Concrete learning outcomes are:

Students can outline the types of investment strategies in the markets, the preconditions and boundary conditions of these strategies, and the strategies which are suitable in principle for private investors.

Students can outline the risks entails by an investment strategy. They can describe specifically for private investors the role played by investment goals, investment horizon, psychological make-up, expertise and resource limitations, time restraints in particular.

Students can outline and give their assessment of a number of “technical” optimisation strategies.

Students can describe and give their assessment of important “classical” investment strategies for private investors.

Students can outline the important role played by financial market intermediation for private investors.

Students can reflect the role played by chance in investment success.

Students can further research investment strategies independently and in a structured fashion. They can work towards a realistic self-assessment regarding their own goals and constraints.

Every session begins with an introductory lecture on one or two exemplary topics. It is followed by student working sessions coached by the professor.

Students are asked for their input on the topics covered before the course commences. the student working sessions are based on a reading list which will be published in time for the course.

Immanent examination

None

Recommended literature and the reading list for student working sessions will be published in time for the course.

In-class lecture