PORTFOLIO MANAGEMENT
PROGRAMMME: MSc INVESTMENT AND FINANCE
Write a report to manage an equity portfolio for an investor with a risk aversion parameter A=5 in his representative utility function U = E[Rp] + 0.005 A σ2.
The report requires that you:
(1) Outline the portfolio management process, which typically include four steps, i.e. the description of client’s needs, the analyses of market condition, the alignment of the needs and condition by constructing the portfolio and finally the assessment measures of the portfolio performance.
(10 marks)
(2) Assuming you will invest in stocks and Treasury Bills:
(15 marks)
(a) Discuss the theoretical concept of portfolio diversification and select 25 stocks from the constituents of the S&P 500 Index and collect monthly returns for the 10-year period ending December 31, 2019.
(b) Discuss the theoretical concept of the Treynor/Black method and use data for the 10-year period ending December 31, 2019 to identify 15 mispriced stocks from the S&P 500.
(c) Using data from both (a) and (b) analyse the annualised risk return profile of each sample stock. (Note: your analysis should include descriptive statistics, autocorrelation, and correlation analysis. Such analysis should be considered as an exploratory data analysis. Include the names and ticker of your sample companies in an Appendix.)
(3) Using the sample in part 2(a), construct optimal and complete portfolios (based on your investment objectives/constrains) using (a) the Markowitz methodology, (b) Using the sample in part 2 (b) and the S&P 500 index, construct optimal and complete portfolio using the Treynor/Black methodology. Discuss the aforementioned portfolios from both active and passive investor perspectives and evaluate them using any two appropriate techniques (Note: You should present the theoretical concepts. You may allow for short-selling. You need to briefly justify your selection of portfolio performance evaluation measures).
(50 marks)
(4) Evaluate the performance of the portfolios for the next year i.e. 1st January 2020 – 31st December 2020. Critically compare these results with the previous results in part 3.
(10 marks)
Your coursework should be presented as a report (unified piece of work) rather than answers to each part of the aforementioned questions. There are 15 marks attributed to the presentation or your report. The workings of your portfolios should be well-organised in an excel file, and submitted together with your report.
This report has an overall word limit of 2000 words. The word count should include all the text (plus endnotes and footnotes,) but exclude diagrams, tables, references and appendices.
Your submission is to the Module Canvas Assignment Turnitin Link on or before submission deadline shown above. Failure to meet this requirement will result in the coursework receiving a zero mark.