Complete Examination Syllabus

Contents

Part 1

Portfolio Management

Modern Portfolio Theory

The Risk/Return Framework

Efficient Market Hypothesis

Portfolio Theory

Capital Asset Pricing Model (CAPM)

Arbitrage Pricing Theory

Investment Policy

Investment Objectives

Asset Allocation

Asset Allocation Overview

Type of Asset Allocation

Practical Portfolio Management

Managing an Equity Portfolio

Derivatives in Portfolio Management

Managing a Property Portfolio

Alternative Assets/Private Capital

International Investments

Performance Measurement

Performance Measurement and Evaluations

Management of Investment Institutions

Assessing and Choosing Managers

Part 2

Equity Valuation and Analysis

Equity Markets and Structures

Understanding the Industry Life Cycle

Analysing the Industry Sector and its Constituent Companies

Understanding the Company

Valuation Model of Common Stock

Part 3

Bond Valuation and Analysis

Financial Markets and Instruments

Fixed Income: Corporate and Government

Financial Markets and Instruments

Time Value of Money

Bond Yield Measures

Term Structure of Interest Rates

Bond Price Analysis

Risk Measurement

Credit Risk

Bonds with Warrants

Investment Characteristics

Value of Warrants

Convertible Bonds

Investment Characteristics

Value of Conversion Benefits

Callable Bonds

Investment Characteristics

Valuation and Duration

Floating Rate Notes

Investment Characteristics and Types

Valuation Method

Mortgage-Backed Securities

Types of Mortgages

Types of Securities

Factors Affecting Market Price

Valuation Methodologies

Fixed Income Portfolio Management Strategies

Active Management

Passive Management

Portfolio Construction based on a Factor Model

Computing the Hedge Ratio: the Modified Duration Method
.

Fo/Fi

1.1.3 Measures of risk

1.1.3.1 Measures (eg. variance, standard

deviation, coefficient of

variation, covariance, correlation

and beta)

1.1.3.2 Value at Risk

BKM Ch5, Risk and risk aversion

5.1 Risk and risk aversion, p 143-149

5.2 Portfolio risk, p 149-154

A. A A defence of mean-variance analysis, p

158-165

Solnik1 Ch4, The case for international

diversification

4.1 Risk diversification, p 91-107

SAB Ch6, The portfolio selection problem

6.5 Calculating expected returns and standard

deviations for portfolios, p 148-151

Hull (4th Ed.): ch. 14, Value at risk, p 342346

Fo/Fi

1.2 Efficient market hypothesis

1.2.1 Definition & assumptions

1.2.2 Alternative hypothesis

BKM Ch12, Market efficiency

12.1 Random walks and the efficient market

hypothesis, p 339-341

Solnik Ch5, International asset pricing:

theory and tests

5.1 Efficient markets, p 131-138

SAB Ch4, Efficient markets

4.2 Market efficiency, p 92-97

Fo/Fi

 1 All subjects described in the book are done in an international framework. The book is mostly descriptive, only

little mathematics are given.

1.2.3 Types of market efficiency

1.2.3.1 Weak form

1.2.3.2 Semi-strong form

1.2.3.3 Strong form

BKM Ch12, Market efficiency

12.1 Random walks and the efficient market

hypothesis

- Versions of the efficient market hypothesis,

p 341

Solnik Ch5, International asset pricing:

theory and tests

5.1 Efficient markets, p 131-138

SAB Ch4, Efficient markets

4.2 Market efficiency, p 92-97

4.4 Summary of market efficiency test

results, p 103

Fo/Fi

1.2.4 Market anomalies

1.2.4.1 Size effect (ie. small firm effect)

1.2.4.2 High E/P ratio effect

1.2.4.3 Day of the week effect

1.2.4.4 Year-end or January effect

1.2.4.5 Return patterns (eg. Value Line

enigma, quarterly earnings

surprises)

1.2.4.6 Fama-French book value/market

value

BKM Ch12, Market efficiency

12.2 Implications of the EMH for investment

policy

- Fundamental analysis, p 347

- Technical analysis, p 342-347

12.3 Event studies, p 351-355

12.4 Are market efficient, p 356-377

Solnik Ch5, International asset pricing:

theory and tests

5.1 Efficient markets, p 131-138

SAB Ch15, Bond portfolio management

A. A Empirical regularities in the bond

market, p 448-449

SAB Ch16, Common stocks

A. A Empirical regularities in the stock

market, p 496-503

Fi

1.3 Portfolio theory

1.3.1 Diversification and portfolio risk

BKM Ch. 5, Risk and risk aversion

5.2 Portfolio risk, p 149-154

A. B Risk aversion and expected utility, p

165-169

Solnik Ch. 4, The case for international

diversification

4.2 Risk adjusted return, p 108-116

SAB Ch6, p 141-147, The portfolio selection

problem

6.2 Nonsatiation and risk aversion, p 141-142

6.3 Utility, p 142-144

6.4 Indifference curves, p 144-148

SAB Ch7, Portfolio analysis

7.4 Diversification, p 184-190

Fo/Fi

1.3.2 Markowiz model and efficient BKM Ch6, Capital allocation between the Fo/Fi

frontier

risky asset and the risk-free asset

6.1 Capital allocation across risky and risk-

free portfolios, p 171-173

6.2 The risk-free asset, p 173-175

6.3 Portfolios of one risky asset and one risk-

free asset, p 175-180

6.4 Risk tolerance and asset allocation, p

180-183

6.5 Passive strategies: the capital market line,

p 183-187

BKM Ch7, Optimal risky portfolios

7.1 Diversification and portfolio risk, p 193195

7.2 Portfolios of two risky assets, p 195-203

7.3 Asset allocation with stocks, bonds and

bills, p 203-210

7.4 The Markovitz portfolio selection model,

p 210-217

7.5 Optimal portfolios with restrictions on the

risk-free asset, p 217-221

A. A The power of diversification, p 226-228

BKM Ch26, International diversification

26.1 International investments, p 831-852

Solnik Ch4, The case for international

diversification

4.2 Risk adjusted return, p 108-116

SAB Ch7, Portfolio analysis

7.1 The efficient set theorem, p 171-174

7.2 Concavity of the efficient set, p 175-180

7.3 The market model, p 181-184

7.4 Diversification, p 184-190

A. A The Markowitz model, p 193-197

A. B Determining the inputs needed for

locating the efficient set, p 198-200

SAB Ch8, Riskfree borrowing and lending

8.1 Defining the riskfree asset, p 204-205

8.2 Allowing for risk free lending, p 205-211

8.3 Allowing for riskfree borrowing, p211215

8.4 Allowing for both riskfree borrowing and

lending, p 215-218

A. A Allowing for different borrowing and

lending rates, p 221-223

A. B Determining the composition of the

investor’s optimal portfolio O*, p 223-225

1.4 Capital asset pricing model

(CAPM)

1.4.1 Major assumptions

BKM Ch8, The capital asset pricing model

8.1 The capital asset pricing model, p 236248

8.2 Extensions of the CAPM

– The CAPM with restricted borrowing: the

zero-beta model, p 249-252

Solnik Ch5, International asset pricing:

theory and tests

5.2 Asset pricing theory

- The domestic CAPM, p 138-139

SAB Ch9, The capital asset pricing model

9.1 Assumptions, p 227-228

A. A1 Imposing restrictions on riskfree

borrowing, p 245-247

Fo/Fi

1.4.2 Capital market line (CML) BKM Ch6, Capital allocation between the

risky asset and the risk-free asset

6.5 Passive strategies: the capital market line,

p 183-187

SAB Ch9, The capital asset pricing model

9.2 The capital market line, p 229-233

Fo/Fi

1.4.3 Security market line (SML) BKM Ch8, The capital asset pricing model

8.1 The capital asset pricing model

- The security market line, p 246-248

SAB Ch9, The capital asset pricing model

9.3 The security market line, p 233-238

Fo/Fi

1.4.4 International CAPM BKM Ch26, International diversification

26.1 International investments

- Equilibrium in international capital markets,

p 851-852

Solnik Ch5, International asset pricing:

theory and tests

5.2 Asset pricing theory

- The international CAPM, p 139-141

Fi

1.5 Arbitrage pricing theory

1.5.1 Assumptions

BKM Ch10, Arbitrage pricing theory

10.1 Arbitrage: Profits and opportunities, p

289-292

Fi

1.5.2 One factor models

1.5.3 Multi-factor models

1.5.3.1 Time-series approach

1.5.3.2 Cross-sectional approaches

1.5.3.3 Statistical approaches (factor

analysis)

BKM Ch9, Index models

9.1 A single-index security market, p 266275

9.2 The CAPM and the index model, p 275278

9.3 The industry version of the index model,

p 278-282

9.4 Predicting betas, p 282-283

BKM Ch11, Empirical evidence on security

returns

11.2 Multiple factors in security returns, p

329-333

SAB Ch10, Factor models

10.1 Factor models and return generating

process, p 256-257

Fo/Fi

10.2 One-factor models, p 257-262

10.3 Multiple-factor models, p 262-270

10.4 Estimating factor models, p 270-275

10.5 Factor models and equilibrium, p 275276

1.5.4 Arbitrage pricing theory

1.5.4.1 Factor models and arbitrage

portfolios

1.5.4.2 Factor risk premiums and

expected returns

BKM Ch10, Arbitrage pricing theory

10.1 Arbitrage: Profits and opportunities, p

289-292

10.2 Well-diversified portfolios and the APT,

p 292-298

10.3 Individual asset and the APT, p 298-300

10.4 The APT and the CAPM, p 300-301

10.5 A multifactor APT, p 301-303

BKM Ch11, Empirical evidence on security

returns

11.1 The index model and the single-factor

APT, p 311-329

SAB Ch11, Arbitrage pricing theory

11.1 Factor models, p 283-286

11.2 Pricing effects, p 286-289

11.3 Two factor models, p 289-291

11.4 Multiple-factor models, p 291-292

11.5 A synthesis of the APT and CAPM, p

292-296

11.6 Identifying the factors, p 296-297

Fi

2. Investment policy

2.1. Investment objectives

2.1.1 Setting investment objectives for

individuals

2.1.2 Deciding portfolio structure

BKM Ch.27, Managing client portfolios

27.1 Making investment decisions, p 858-864

SAB Ch23, Investment management

23.2 Investment management functions, p

794

23.3 Setting investment policy, p 794-799

Fo/Fi

2.1.3 Setting objectives for institutions

2.1.3.1 Objectives (return requirement,

risk tolerance)

2.1.3.2 Constraints (liquidity, time

horizon, tax considerations, legal

and regulatory considerations)

BKM Ch27, Managing client portfolios

27.1 Making investment decisions, p 858-864

27.2Constraints, p 864-866

Fi

2.1.3.3 Pensions and employee benefit

funds

2.1.3.4 Endowment funds

2.1.3.5 Insurance companies and

commercial banks

BKM Ch28, Managing retirement assets and

pension funds

28.1 The life cycle and the risk-return trade-

off, p 893-895

28.2 Manage your own portfolio or rely on

others, p 895-896

28.4 Pension fund, p 902-908

Fi

3. Asset allocation

3.1 Asset allocation overview

3.1.1 What is asset allocation ?

3.1.2 Who does asset allocation ?

3.1.3 Implementing and managing the

asset allocation process

3.1.4 Evolution of asset allocation

theory, practice and performance

3.1.5 Capital Market Expectations

BKM Ch27, Managing client portfolios

27.3 Asset allocation, p 866-879

Solnik Ch17, Structuring the international

investment process

17.3 Structuring and quantifying the asset

allocation process: an illustration, p 590-598

Fo/Fi

 (economic, social, political and

market factors)

SAB Ch23, Investment management

23.2 Investment management functions, p

794

23.3 Setting investment policy, p 794-799

GK Ch11, Information analysis

11.1 Introduction, p 247-248

11.2 Information and active management, p

248-250

11.3 Information analysis, p 250

11.4 Step 1: Information into portfolios, p

250-253

11.6 The pitfalls of information analysis, p

260-261

3.2 Type of asset allocation

3.2.1 Integrated asset allocation

3.2.2 Strategic asset allocation

3.2.3 Tactical asset allocation

3.2.4 Dynamic asset allocation

Solnik Ch17, Structuring the international

investment process

17.2 From strategic to tactical, p 583-590

Fi

4. Practical portfolio

management

4.1 Managing an equity portfolio

4.1.1 Active management

4.1.1.1 Technical analysis/market timing

4.1.1.2 Stock selection/industry

selection

4.1.1.3 Growth/value style

4.1.1.4 Specialisation/themes

4.1.1.5 Anomalies

4.1.1.6 Top-down/bottom-up

4.1.1.7 Adjusting the beta of an equity

portfolio

BKM Ch23, The theory of active portfolio

management

23.1 The lure of active management, p 750752

23.2 Objectives of active portfolios, p 752755

23.3 Market timing, p 756-760

23.4 Security selection: the Treynor-Black

model, p 760-767

Solnik Ch17, Structuring the international

investment process

17.1 Investment philosophy, p 575-583

SAB Ch22, Financial analysis

22.2 Reasons for financial analysis, p 741746

22.3 Technical analysis, p 746-751

22.4 Fundamental analysis, p 751-752

22.6 Analysts’ recommendations and stock

prices, p 768-770

22.7 Analyst following and stock return, p

770-771

A. A Technical analysis, p 780-784

SAB Ch23, Investment management

23.4 Security analysis and portfolio

construction, p 799-806

GK Ch6, The fundamental law of active

management

6.1 Introduction, p 117

6.2 The fundamental law, p 117-120

6.3 Examples, p 120-122

6.4 Additivity, p 123-125

6.5 Assumptions, p 126-128

6.6 Not the law of large numbers, p 128-129

6.7 Tests, p 129

6.8 Investment style, p 129

Fo/Fi

4.1.2 Passive management

4.1.2.1 Buy and hold

4.1.2.2 Stock index funds

4.1.2.3 Customised funds

4.1.2.4 Completeness funds

4.1.2.5 Factor/style funds

4.1.2.6 Indexing technology

4.1.2.7 Benchmark choice

4.1.2.8 Choice of the tracking error

SAB Ch21, Investment companies

21.2 Major types of investment companies, p

701-709

21.3 Investment policies, p 709-711

21.6 Evaluating mutual funds

Investment style, p 724-725

SAB Ch23, Investment management

23.4 Security analysis and portfolio

construction, p 799-806

Fo/Fi

4.1.3 Combined strategies

4.1.3.1 Active/passive combinations

4.1.4 Portfolio construction based on a

factor model

BKM Ch23, The theory of active portfolio

management

23.5 Multifactor models and active portfolio

management, p 767-769

Fo/Fi

4.2 Derivatives in portfolio

management

4.2.1 Combining options and

traditional assets

4.2.2. Portfolio insurance

4.2.2.1 Static portfolio insurance

4.2.2.2 Dynamic portfolio insurance

4.2.2.3 Constant Proportion Portfolio

Insurance

4.2.3 Hedging with stock index futures

4.2.4 Hedging with foreign exchange

futures

4.2.5 Hedging with interest rate

futures

4.2.7 Use of swaps in portfolio

management

4.2.7 Asset allocation with futures

BKM Ch20, Option valuation

20.5 Using the Black-Scholes formula

- Portfolio insurance, p 672-677

BKM Ch25, Hedging

25.1 Hedging techniques, p 811-823

Solnik Ch12, Options

12.3 Hedging with futures, p 418-429

Solnik Ch13, Options

13.3 Insuring with options, p 462-464

13.4 Other use of options, p 464-474

Solnik Ch14, Currency risk management

14.1 Hedging with futures or forward

currency risk, p 488-496

14.2 Insuring and hedging with options, p

496-500

14.3 Other methods for managing currency

exposure, p 500-502

SAB Ch19, Options

19.9 Portfolio insurance, p 637-641

Fo/Fi

4.3 Managing a property portfolio

4.3.1 The role of property in a

diversified portfolio

4.3.2 The property investment

decision

4.3.3 Micro economic influences on

property returns

4.3.4 Macro economic influences on

property returns

4.3.5 Difference property investments

Solnik Ch15, Commodities, real estate, and

alternative investments

15.2 Real estate, p 527-529

Fo/Fi

4.4 Alternative assets/private

capital

4.4.1 Unlisted (non-property)

securities

4.4.2 Terms, conditions and

characteristics

4.4.3 Role in a traditional portfolio

4.4.4 Managing unlisted security

vehicles

4.4.5 Monitoring and reporting

Solnik Ch15, Commodities, real estate, and

alternative investments

15.3 Alternative investments, p 527-529

Fi

4.5 International investments

4.5.1 International diversification

4.5.1.1 Cross-correlations

4.5.1.2 Country risk

4.5.1.3 Emerging markets

BKM Ch26, International diversification

26.1 International investments, p 832-852

Solnik Ch4, The case for international

diversification

4.1 Risk diversification, p 91-107

4.2 Risk adjusted return, p 108-116

4.3 Constraints and misconceptions, p 116120

Solnik Ch8, Emerging stock markets

5.1 Some statistics on emerging economies

and markets, p 252-256

5.2 The case for investing in emerging

markets, p 256-266

5.3 Some practical issues and problems, p

266-278

Solnik Ch9, Bonds: markets and instruments

9.4 Emerging markets and Brady bonds, p

307-311

SAB Ch25, International investing

25.1 The total investable Capital market

portfolio, p 876-893

25.2 Risk and return from foreign investing

25.4 Correlations between markets

Fo/Fi

4.5.2 Hedging foreign exchange risk

4.5.2.1 Effective management of

currency risk

4.5.2.2 Behaviour of currency returns

4.5.2.3 Is it a separate asset class / zero

sum game?

4.5.2.4 Treatment of currency within a

global portfolio / optimal level of

hedge

4.5.2.5 Black's paper on universal

currency hedge

4.5.2.6 Use of overlay strategies

BKM Ch26, International diversification

26.1 International investments

Exchang rate risk, p 840-845

Solnik Ch4, The case for international

diversification

4.2 Risk adjusted return, p 108-116

Solnik Ch5, International asset pricing:

theory and tests

5.2 Asset pricing theory

Currency risk hedging, p 141-143

Fo/Fi

4.5.2.7 Key sensitivities

4.5.2.8 Currency-related example of

performance attribution

SAB Ch, International investing

25.2 Risk and return from foreign investing,

p 880-887

Black F., "Universal hedging: optimising

currency risk and reward in international

equity portfolios", Financial Analysts

Journal, July/August 1989

Black F., "Equilibrium exchange rate

hedging", Journal of Finance, July 1990

4.5.3 International equities

4.5.3.1 Reasons for holding international

equity assets

4.5.3.2 Performance objectives

Solnik Ch6, Equity: markets and instruments

6.1 Some statistics, p 167-171

6.2 Major differences among markets, p 171183

Fi

4.5.4 International fixed income

4.5.4.1 Reasons for holding international

fixed interest assets

4.5.4.2 Performance objectives

Solnik Ch9, Bonds: markets and instruments

9.1 Some statistics, p 287-293

9.2 Major differences among bond markets, p

293-304

Fi

4.5.5 Managing a portfolio of

international assets

4.5.5.1 International investing

4.5.5.2 Global asset allocation

4.5.5.3 Portfolio management styles

4.5.5.4 Portfolio construction

4.5.5.5 Portfolio management strategy

BKM Ch26, International diversification

26.1 International investments

Passive and active international investing, p

845-849

Factor models and international investing, p

849-851

Equilibrium in international capital markets,

p 851-852

Solnik Ch4, The case for international

diversification

4.2 Risk adjusted return, p 108-116

4.3 Constraints and misconceptions, p 116120

Solnik Ch17, Structuring the international

investment process

17.3 Structuring and quantifying the global

asset allocation process, p 590-598

Fi

5. Performance measurement

5.1 Performance measurement

and evaluations

5.1.1 Risk-return measurement

5.1.1.1 Market and book value

evaluation

5.1.1.2 Time horizon and performance

measurement

BKM Ch24, Portfolio performance

evaluation

24.1 Measuring investment returns, p 773778

Solnik Ch16, International performance

analysis

16.1 The basics, p 545-552

Fo/Fi

5.1.1.3 Inflow/outflow of cash and Fo/Fi

performance measurement

5.1.1.4 Time-weighted and dollar-BKM Ch24, Portfolio performance Fo/Fi

weighted rate of return evaluation

24.1 Measuring investment returns, p 773778

Solnik Ch16, International performance

analysis

16.1 The basics, p 545-552

SAB Ch24, Portfolio performance evaluation

24.1 Measures of return, p 825-829

GK Ch14, Performance analysis

14.3 Defining returns, p 319-320

5.1.2 Risk-adjusted performance

measures

5.1.2.1 Sharpe's measure

5.1.2.2 Treynor's measure

5.1.2.3 Jensen's alpha

5.1.2.4 Appraisal ratio

BKM Ch24, Portfolio performance

evaluation

24.2 The conventional theory of performance

evaluation, p 778-789

24.3 Performance measurement with

changing portfolio composition, p 789-791

SAB Ch24, Portfolio performance evaluation

24.4 Risk-adjusted measures of performance,

p 835-855

24.5 Market timing, p 850-853

24.6 Criticisms of risk-adjusted performance

measures, p 853-855

GK Ch5, Residual risk and return: The

information ratio

5.2 The definition of alpha, p 89-90

5.3 The ex-post information ratio: a measure

of achievement, p 90

5.4 The ex-ante information ratio: a measure

of opportunity, p 90-93

Fo/Fi

5.1.3 Relative investment performance

5.1.3.1 Manager-universe comparison

5.1.3.2 Indices and benchmarks

5.1.3.2.1Index definition and calculation

5.1.3.2.2Choosing and constructing a

benchmark

5.1.3.2.3Domestic vs. international

benchmarks

5.1.3.2.4Cash benchmark and currencies

5.1.3.2.5 Multi-currency investments and

interest rate differentials

5.1.3.2.6Currency overlay and

performance measurement

5.1.3.2.7 Balanced benchmarks

5.1.3.2.8Random and normal portfolios

5.1.3.2.9Index vs. universe median

5.1.3.3 Style-bogey comparisons

SAB Ch24, Portfolio performance evaluation

24.2 Making relevant comparisons, p 829

24.3 Market indices, p 829-835

GK Ch 5, Residual risk and return: The

information ratio

5.11 Forecast alphas directly, p 102-105

5.12 Practical details, p 105

Fi

5.1.4 Performance attribution analysis

5.1.4.1 Asset allocation effect

5.1.4.2 Industry selection effect

5.1.4.3 Security selection effect

5.1.4.4 Investment timing effect

5.1.4.5 Attribution analysis of fixed

income portfolio

BKM Ch24, Portfolio performance

evaluation

24.4 Market timing, p 791-793

24.5 Performance attribution procedures, p

793-797

24.6 Evaluating performance evaluation, p

798-800

SAB Ch24, Portfolio performance evaluation

24.5 Market timing, p 850-853

A. A Performance attribution, p 867-869

GK Ch14, Performance analysis

14.4 Cross-sectional comparison, p 320-322

14.5 Returns-based performance analysis:

basic, p 322-325

14.6 Returns-based performance analysis:

advanced, p 325-329

14.7 Portfolio-based performance analysis, p

329-330

14.8 Performance attribution, p 330-332

14.9Performance analysis, p 332-337

Fi

5.1.5 Special issues

5.1.5.1 Performance evaluation of

international investments

5.1.5.2 A single currency attribution

model by Brinson & al.

5.1.5.3 Multi-currency attribution and

interest rate differentials

Solnik Ch16, International performance

analysis

16.2 Designing an IPA system, p 552-560

16.3 Risk and performance, p 561-563

16.4 Implementation, p 563-566

Fi

5.1.5.4 Performance evaluation of

derivative investments

Fi

5.1.5.5 Effects of costs (including taxes,

commissions, incentive fees,

etc.)

Fo/Fi

6. Management of investment

institutions

6.1 Assessing and choosing

managers

6.1.1 Style analysis

6.1.2 Means of style analysis

SAB Ch21, Investment companies

21.6 Evaluating mutual funds

Investment style, p 724-725

GK Ch6, The fundamental law of active

management

6.8 Investment style, p 129

Fi

6.1.3 Style analysis: application to

different asset classes equity

6.1.4 Risks, controls and prudential

issues: organisational issues

6.1.5 Risks, controls and prudential

issues: fee structures

Fi