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Seminar in Finance, Investment and Risk Management, Summer 2010

Preface

The seminar is open to Bachelor students only. To successfully pass the seminar you need to write a paper and give a presentation. Papers can be written in either German or English and should be of 15-20 pages as a team of two or 10-15 pages if you are working alone. For hints how to write a paper see our guidelines. You need to hand in a printed version and also a digital one (PDF/Word/OpenOffice). The seminar talks should be given in English. As a team you will have to present around 45 minutes and if you work alone, it will be 30 minutes.

For each topic, you should provide a literature survey (here you should consider more than your intro-paper) and maybe you will also have to work on a practical part in which you should get familiar with empirical analysis (accessing data over Datastream or Bloomberg, performing quantitative analyses). If you choose one of these topics you should know how to use Excel and/or other data analysis tools.

Some weeks after your registration and before your presentation your supervisor will arrange meetings to discuss your literature and your paper's outline. So you can assure yourself on not missing the point.

All dates for meetings, deadlines, presentations are in the timetable below.

Timetable

DateTimeLocation 
11th Feb 20106.30 pmTrading Room, HeHo 18Seminar presentation and allocation of topics
    
Mid of June  Deadline for handing in your seminar paper
End of June  Presentation of your seminar work

FAQ & Organisational matters

  • Do we get a grade? Yes. Your paper and your presentation will be graded and lead to one grade (equally weighted).

Topics

  1. Does portfolio optimization create value?

    It has been known for long that portfolio optimization is plagued by estimation errors. Recent studies cast new doubt on the added value of performance. In this paper, you shall review the literature. Some of the optimization techniques suggested for dealing with estimation error are fairly advanced, so you can focus on the standard techniques without short-sale constraints and selected, advanced techniques that are relatively easy to implement (e.g. Bayes-Stein shrinkage estimator). Conduct your own empirical study for German assets along the lines of DeMiguel, Garlappi and Uppal (2009). You can for example consider a three-asset portfolio with the German stock market, the German bond market and the world stock market.

    Data: Market data from Datastream or Bloomberg.
    Supervisor: tba.
    Student(s): tba.
    Literature to get started:
    • DeMiguel / Garlappi / Uppal (2009). Optimal versus naive diversification: How inefficient is the 1/N portfolio strategy? Review of Financial Studies 22, 1915-1953.

  2. How smart are mutual fund investors?

    Many mutual fund investors appear to pursue an active investment strategy in the sense that they try to pick winning funds, and move in or out of the market on aggregate. In this paper, you shall review the literature related to this question. You shall cover both aspects, i.e. (i) can investors pick winning funds, and (ii) how successful are investors in market timing. In a small empirical study, you can examine how aggregate inflows are related to subsequent market returns.

    Data: annual fund flows from www.bvi.de , market data from Datastream
    Supervisor: Gunter Löffler
    Student(s): Igor Gornev
    Literature to get started:
    • Sapp, T., Tiwari, A., 2004. Does Stock Return Momentum Explain the 'Smart Money' Effect? Journal of Finance 59, 2605-2622.

  3. Fund incubation and other strategies to create top performing funds

    As top-performing mutual funds tend to attract large inflows, mutual fund companies have an incentive to create "winner" funds. In this paper you shall review the literature on such strategies. They include incubation strategies and cross-fund subsidization. Try to assess how such strategies affect the performance of investors and how regulators could try to deal with it.

    Supervisor: Gunter Löffler
    Student(s): Max Moldenhauer und Malte Herlitze
    Literature to get started:

  4. Risk management lessons from the financial crisis

    Many observers argue that the 2007-2008 financial crisis has clearly shown how deficient risk models are. In this paper, you shall critically review the evidence and discuss lessons that should be drawn. Questions you should address include: Which risk factors where ignored or underestimated in banks' risk management models? What was the role of model failure as opposed to management failure, i.e. managers using models in the wrong way? Which changes are considered by regulators? Which changes should banks consider?

    Supervisor: Gunter Löffler
    Student(s): Viktor Kusnezow
    Literature to get started:

  5. The performance of value-at-risk models during the financial crisis

    For this paper, you shall implement VaR-methods for an example portfolio and test the accuracy during the 2007-2008 crisis. The methods you should consider are variance-covariance approach, Monte Carlo simulation, historical simulation, volatility-adjusted historical simulation. In applying the models, you should consider different volatility estimates (exponential weighting, standard estimator), and different distributional assumptions for Monte Carlo (normal and student t). For the example portfolio, you can consider the following exposures: S&P 500, at-the-money calls on S&P 500, US treasuries, US corporate bonds, oil price. Assess the performance of your value-at-risk forecasts. Also, compare them to the one of banks' VaR models (many banks publish such information in their annual reports).

    Data: Datastream or Bloomberg
    Supervisor: Alina Maurer
    Student(s): Maria Bruno und Martin Weinberger
    Literature to get started:

  6. Alternative performance measures for mutual funds

    Even widely used performance measures have been subjects to criticism and new measures have been developed. In this paper, you shall give an overview of traditional methods of evaluating portfolio performance and their weaknesses. Some performance measures are not based on benchmarks but employ portfolio holdings. Give an introduction into these methods. Provide and compare the findings of studies based on these measures.

    Supervisor: Thomas Verchow
    Student(s): Andreas Rieger
    Literature to get started:

  7. Luck or Skill: The performance of mutual funds

    Active investment must be a zero sum game. The positiv α of some is at the expense of others.
    Examine the literature to the persitence in mutual fund performance and try to answer the question: Is outperformance of mutual funds based on luck or skill?

    Data: Datastream or Bloomberg
    Supervisor: Gunter Löffler
    Student(s): Fabian Nusser und Frank Palletien
    Literature to get started:

  8. Portfolio Insurance

    The idea behind portfolio insurance strategies is preserving a specific level of wealth while not excluding to participate in upward moving markets. The well known strategies are the constant proportion portfolio insurance (CPPI) and the option based portfolio insurance (OBPI). Based on these traditional strategies, other techniques have been developed. Some variation of the CPPI uses a variable multiple instead of a constant one. Another approach uses a zero-coupon bond to extract the downside coverage to the desired investment horizon. Give a comparing overview of portfolio insurance strategies and discuss their practicality and performance. In a practical part analyze the performance of different strategies.

    Data: Datastream or Bloomberg
    Supervisor: Thomas Verchow
    Student(s): Bernd Schumacher
    Literature to get started:

  9. Market timing in commodity markets

    Some researchers belief it is impossible to time the market. Others found timing strategies to outperform the market. In this topic you should give an overview of popular timing strategies and present findings in the commodity market.
    In a practical part you should implement some timing strategies on different commodities and analyse their performance and robustness.
    In a practical part you should implement some timing strategies on different commodities and analyse their performance and robustness.

    Data: Datastream or Bloomberg
    Supervisor: tba.
    Student(s): tba.
    Literature to get started:

  10. Warren Buffett - analyzing the strategy and performance of the world's most famous investor

    The authors analyze Berkshire Hathaway's equity portfolio over the 1976 to 2006 period and explore potential explanations for its superior performance. Although beating the market in all but four years can statistically happen due to chance, incorporating the magnitude by which the portfolio beats the market makes a luck explanation extremely unlikely even after taking into account ex-post selection bias. The authors' evidence suggests the Berkshire Hathaway triumvirates of Warren Buffett, Charles Munger, and Lou Simpson possess investment skill unlikely to be explained by Efficient Market Theory.
    Practical part: Based on 13F-Filings perform your own analyses for other famous and successful investors.

    Data: Datastream or Bloomberg, EDGAR online, Dataroma.com
    Supervisor: Thomas Verchow
    Student(s): Joshua Lüdtke
    Literature to get started:

These pages are out of date: You find our new websites on http://www.uni-ulm.de/mawi/iof