Investment Management Lecture Notes

Vocabulary flashcards covering key concepts from investment management including asset allocation, security selection, and risk management.

Asset Allocation

Spreading earnings across different assets to manage investment risks.

Security Selection

Picking specific stocks or bonds to invest in.

Efficient Markets

The theory that financial markets are efficient in reflecting information about assets.

Passive Management

Holding assets for the long-term, regardless of market changes.

Active Management

Buying or selling assets based on market forecasts and analysis.

Financial Intermediaries

Entities that serve as middlemen between savers and borrowers, such as banks and insurance companies.

Primary Market

A market where securities are sold for the first time.

Secondary Market

A market where pre-existing securities are traded among investors.

Venture Capital

Private equity investment to finance new firms or startups.

Fintech, financial innovation, decentralized finance

Technological advancements in financial markets that eliminate the need for intermediaries.

Systemic Risk

The risk of collapse of an entire financial system or market, as opposed to risk associated with any individual entity.

Dodd-Frank Reform Act

Legislation aimed at reducing risks in the U.S. financial system post-2008 crash.

Securitization

The process of pooling loans into standardized loans that can be traded like securities.

Real Assets

Assets used to produce goods or services, such as real estate.

Financial Assets

Claims on real assets or income generated by them.

Derivative Securities

Securities whose payoffs depend on the values of other assets.

Risk Allocation

The process by which investors select their desired level of risk in their investment.

Stakeholder Capitalism

The idea that corporations should address ethical and societal issues beyond just making profits.

Corporate Governance

The system by which companies are directed and controlled, requiring trust to function properly.

Risk-Return Trade-Off

The principle that potential return rises with an increase in risk.

ESG Investment

accounts for environmental, societal, and governance characteristics when making decisions

• ex. you want a renewable, fair treatment, and transparent company

separation of owners and management

• stockholders own stock; but CEO, CFO’s manage and run companies

when owners and managers do not agree what happens?

• pay managers compensation packages to get motivated

• fire managers

• hostile takeover