Investment and Sustainability

Allocating money from savers to borrowers provides capital for firms and governments, and allows individuals to achieve on their investment objectives over the investment cycle. In this module we will assess the opportunity set of different asset classes, and how to evaluate their risk and performance.  We will investigate how assets are best combined to build portfolios, using methods from portfolio theory and practice.  We will discuss the role of derivatives, mechanics of investing, and the behavioural aspects of investing. Finally, we will look at how sustainable finance and investing bring a new dimension to the investment world, and may impact the traditional concepts and models through which we manage risk, and measure (risk-adjusted) performance.

Learning Outcomes:

On successful completion of this module, students should be able to:

• Compare the main categories of financial assets (traditional and alternative), and their role in providing diversification to a portfolio.
• Evaluate the relationships between risk, return and the covariance of asset returns, and how these contribute to overall portfolio risk and performance; understand the distinction between expected returns and realized returns
• Calculate the optimal allocation of investment capital between risky assets, through the determination of a minimum variance portfolio
• Critique the theory underlying asset pricing models such as Markowitz Model, Single Index Model (“SIM”),the Capital Asset Pricing Model (“CAPM”), and Fama French multi-factor models.
• Understand the key concepts underpinning climate and environmental risks, social and governance risks, and how externalities may result from the underestimation of such risk factors.
• Assess the increasing role of sustainable finance in capital markets, and in portfolio management strategies, basing a critical judgement of this subject on the understanding of the tools and incentives of several key stakeholders, including regulators/policymakers, issuers, and fund managers.

Assessment:

• Examination - 60%
• Group Project - 40%

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