Finance Summer School

Course Overview

This course covers the theory and practice of advanced portfolio management. Students will learn to formulate and solve portfolio choice problems with a focus on the practical challenges of taking optimization theory to the data. In particular, they will learn how to incorporate downside risk in their portfolio decisions, how to deal with estimation error in the parameters, how to exploit return predictability for portfolio decisions combining big data with machine learning methods, how to use factor models in portfolio problems, and how to evaluate the performance of actively managed portfolios, with a focus on the mutual fund industry.

Prerequisites

Basic knowledge of statistics and calculus. Familiarity with portfolio theory and asset pricing is recommended but not necessary.

Course Outline

• Portfolio optimization techniques
• Downside risk and parameter estimation risk
• Portfolio optimization with multi-factor models
• Exploiting big data and machine learning for portfolio decisions
• Active mutual funds and portfolio performance evaluation

References

F. Fabozzi, P. Kolm, D. Pachamanova, S. Focardi. Robust portfolio optimization and management. Wiley (2007)

S. Giglio, B. Kelly, D. Xiu. Factor Models, Machine Learning, and Asset Pricing. Annual Review of Financial Economics 2022 14:1, 337-368

About the Instructor

Javier Gil-Bazo is an Associate Professor of Finance at Universitat Pompeu Fabra and an Affiliated Professor of the BSE. His research deals with the study of institutional investors and asset pricing modeling. His work has been published in academic journals such as the Journal of Finance, Review of Financial Studies, Journal of Banking and Finance, Journal of Financial Markets, Quantitative Finance, Journal of Financial Econometrics, Journal of Economic Behavior and Organization, Journal of Business Finance and Accounting, International Review of Financial Analysis, and Economics Letters. His research on mutual funds has been cited in regulatory proposals by the US Department of Labor and has been featured in the international media, including Forbes, FOX Business, Reuters, and Money Week. Javier Gil-Bazo was the President of the Spanish Finance Association in 2018-19.

Course Overview

This is a highly interactive course that covers more advanced concepts in corporate finance, relating to the dynamics of capital structure, payout and cash policy in the presence of frictions, short-term liquidity management, and the application of multiple techniques for firm valuation. 

We will explore how firms change their liability structure to finance new investments, and how financial frictions limit the ability of firms to optimize their financing. We will investigate the drivers of dividend policy, why firms accumulate large amounts of cash, and the tax implications of such choices. We will examine how firms raise equity and debt from capital markets. We will examine different approaches to forecasting revenue growth, assessing which forecasting method is best suited for each type of firm. We will study how to estimate discount rates and CAPM betas. We will estimate the value of a corporation and of the associated equity claims, using different valuation methods, and show how to reconcile the results obtained from different valuation methods.

The course relies on lectures and case studies and is focused mainly on applications rather than theory. The course is aimed at practitioners that seek a deeper understanding of how to resolve real-life corporate finance problems. The course includes a series of practical sessions that will take place in the afternoon.

Course Outline

1. Capital structure optimization, leverage policies, and leverage dynamics
2. Payout policy and liquidity management 
3. Raising external capital in the presence of financial constraints
4. Valuation techniques 1/2: reconciling DCF methods and multiples valuation
5. Valuation techniques 2/2: real options and venture capital method

References

The course relies on business cases such as (the list is subject to change):

• Blaine Kitchenware, Inc.: Capital structure optimization in the context of a leveraged recapitalization
• Financial Policy at Apple: Optimal cash and payout policy
• OutReach Networks - First Venture Round: Valuation with the venture capital method
• MW Petroleum Corp. (A): Valuation of a firm with real options
• MW Petroleum Corp. (B): Raising finance for an acquisition
• Teuer Furniture: reconciling discounted cash flows and multiples with a focus on estimating growth
• Ferrari’s 2015 Initial Public Offering: valuation in the context of an IPO

Useful background reference textbooks:

• Jonathan Berk and Peter DeMarzo, Corporate Finance, Fourth Edition, 2016, Pearson Prentice Hall.
•  Aswath Damodaran, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset
•  Richard A. Brealey, Stewart C. Myers, Franklin Allen: Principles of Corporate Finance
•  Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe, Corporate Finance
•  Aswath Damodaran, Applied Corporate Finance

About the Instructor

Filippo Ippolito is an Associate Professor of Financial Management at Universitat Pompeu Fabra and a Research Affiliate at the Centre for Economic Policy Research (CEPR), London, and Director of the Master in Finance at the Barcelona School of Economics. Professor Ippolito holds a PhD in finance from Said Business School, Oxford, and an MPhil in Russian and Eastern European Studies from the University of Oxford. He has work experience in the financial and consulting sectors. His research focuses on corporate debt, capital structure, corporate liquidity management and private equity. Professor Ippolito has published in the Journal of Finance, Journal of Financial Economics, Journal of Financial Intermediation, Journal of Monetary Economics, Journal of Money, Credit and Banking, and Journal of Corporate Finance.