COURSE OBJECTIVES:

The primary objective of this course is to provide the student with the theoretical background and analytical tools necessary to sound investment decision-making in equity markets. The course will cover the valuation of equity securities, investment strategies using them and the markets in which they are traded. Topics include investor behavior, the mathematics of equity valuation, market efficiency, history of stock returns, varieties of equity instruments and the many varieties of common stock risk. The course will review professional portfolio strategies and forecasting technique, the evaluation of mutual funds and pension funds, the role of equity options and futures in stock portfolio dstrategies, the role of technical analysis and ethical issues in developing and using information that impacts stock prices.

PREREQUISITE:
Foundations of Finance

READING MATERIAL:

Required Reading:
1. Teall, John. "Readings in Equity Markets" (available on-line).

Recommended Reading:
1. Bodie, Zvi, Alex Kane and Alan J. Marcus. Essentials of Investments , sixth edition. Boston: Irwin McGraw-Hill, 2006.
2. Elton, Edwin and Martin Gruber. Modern Portfolio Theory and Investment Analysis, sixth edition. New York: John Wiley, 2002.
3. Miscellaneous readings provided on the course web site and Blackboard
4. The Wall Street Journal.

Students should read relevant material before lectures.

GRADING POLICY:

Students will be graded on the basis of the following point system:

Mid-term Exam I........ 40 points    90 or more points..... A
Project……………... 20 points    80 to 89 points.......... B
Final Exam............…. 40 points    70 to 79 points.......... C
Total.........................100 points    Fewer than 60 points. F

A "+" will be added to a B or C grade if the last digit of the point total is 8 or 9. A "-" will be added to an A or B grade if the last digit of the point total is 0 or 1. Students may opt not to complete the project as described on the course web page.  In this event, the course grade will be determined by weighting both the mid-term exam and the final exam grades 50%. In addition, readings and problems will be assigned periodically for classroom discussion. Students' participation in such will be used to determine grades in borderline cases.

QUANTITATIVE CONTENT OF COURSE:

Mathematical and statistical models permit a deeper and easier understanding of many types of financial problems. However, it is necessary that students feel comfortable working with such models. The ability to work with secondary school level algebra, elementary statistics and basic first term calculus will be quite sufficient for this course. The prerequisite courses offered in this program in statistics and calculus provide coverage of more material than is required for this course; however, having taken such courses will be useful only if you can still work with the material. In particular, students should be comfortable:

Performing basic algebraic manipulations
Solving systems of equations simultaneously
Working with means, variances and correlation coefficients
 Finding derivatives of equations in polynomial form

Please resolve any difficulties you might experience early in the term. The instructor will be happy to assist you with any remedial work that you might require. In addition, the end-of-textbook quantitative review may prove quite useful.

OFFICE HOURS:
John Teall's office hours at Pace University are Tuesdays and Thursdays  from 5:00 to 6:00. Dr. Teall is also available by appointment.
Office: 9-150; telephone: (212) 998-0300
e-mail: jteall@stern.nyu.edu
Course Web Page: http://pages.stern.nyu.edu/~jteall/

Teaching and Courses

B40.3331

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Teaching and Courses

B40.3331

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The following list of readings may be of interest to you and helpful for the course. The articles listed here are available through the Blackboard Documents page. Several books are listed, but reading them is certainly not required for the course.

I. The Investing Environment

II. The Mind Of The Investor
Ritter, Jay (2003): “Behavioral Finance,” Pacific-Basin Finance Journal Vol. 11, No. 4,
(September 2003) pp. 429-437. Reviews literature in investment psychology and behavioral
finance.
Spencer, Jane (2005): “Lessons from the Brain Damaged Investor,” Wall Street Journal, July 21.
Originally published in the WSJ, and then on WSJ.com, this article reviews certain academic
research on the relationship between emotions and investing.
Brennan, Michael (2004): “How did it Happen?” Unpublished working paper, UCLA. Discusses
the rise in stock prices from 1980 t 2000, focusing on the late 1990s bubble.

III. Equity Market Structure
Ritter, Jay (1998): “Initial Public Offerings,” Contemporary Finance Digest, Vol. 2, No. 1,
Spring, pp. 5-30. Discusses IPO mechanics and returns.
Hasbrouck, Joel, George Sofianos and Deborah Sosebee (1993): “New York Stock Exchange:
Systems and Trading Procedures,” Unpublished working paper, New York University. Very
detailed (more than needed for this course) and somewhat dated discussion of NYSE rules,
procedures ad systems.

IV. Random Walks, Risk And Arbitrage
Malkiel, Burton G. A Random Walk Down Wall Street. New York: W.W. Norton and
Company. [1973]. (There are updated editions). The entire book is very readable and useful for
understanding the concept of market efficiency and how to deal with it.
Lamont, Owen (2001): “The Curious Case of Palm and 3Com,” from James Pickford, editor,
Mastering Investment, Prentice Hall. Discusses an interesting and obvious violation of the Law
of One Price.

V. Technical Analysis And Weak Form Market Efficiency
Elton, Edwin, Martin Gruber, Stephen Brown and William Goetzman. Modern Portfolio
Theory and Investment Analysis, 6th ed. John Wiley, [2002]. Chapter 17 provides a very useful
of market efficiency literature.
Malkiel, Burton G. A Random Walk Down Wall Street. New York: W.W. Norton and
Company. [1973]. (There are updated editions) The entire book is very readable and useful for
understanding the concept of market efficiency and how to deal with it.

VI. Fundamentals Of Valuation
Cottle, Sydney, Roger F. Murray and Frank E. Block. Graham and Dodd’s Securities Analysis.
New York: McGraw Hill. [1988]. This book, the foundation for methodology used by Warren
Buffet, remains the authoritative Wall Street primer on securities valuation.
Damodaran, Aswath (2001): “Relative Valuation – First Principles,” Chapter 7 from Damodaran
on Valuation. Discusses applications of price multiples for valuation.
Lie, Erik and Heidi Lie (2002): “Multiples Used to Estimate Corporate Value,” Financial
Analysts Journal, March/April. Discusses applications of price multiples for valuation.

VII. Additional Issues In Valuation

VIII. Semi-Strong Form And Strong Form Market Efficiency
Elton, Edwin, Martin Gruber, Stephen Brown and William Goetzman. Modern Portfolio
Theory and Investment Analysis, 6th ed. John Wiley, [2002]. Chapter 17 provides a very useful
of market efficiency literature.
Malkiel, Burton G. A Random Walk Down Wall Street. New York: W.W. Norton and
Company. [1973]. (There are updated editions) The entire book is very readable and useful for
understanding the concept of market efficiency and how to deal with it.

IX. Stock Selection and Portfolio Fit
Elton, Edwin, Martin Gruber, Stephen Brown and William Goetzman. Modern Portfolio
Theory and Investment Analysis, 6th ed. John Wiley, [2002]. Chapter 6 discusses the process of
mapping out the efficient frontier.

X. Equity Derivatives

Other:
Engle, Louis and Henry Hecht. How to Buy Stocks. Little, Brown and Company. [1994].
Shiller, Robert J. Irrational Exuberance. Princeton, N.J.: Princeton University Press. [2000]
Siegel, Jeremy J. Stocks for the Long Run, 2nd. ed., New York: McGraw-Hill, 1998.
Tobias, Andrew G. The Only Investment Guide You’ll Ever Need: Expanded and
Updated. Harvest Books. [1999].
White, Gerald, Ashwinpaul Sondhi and Fried (2003): The Analysis and Use of Financial
Statements, 3rd edition. John Wiley.

updated 06/12/07