BFF3121 Investments and Portfolio Management

Assignment Help Portfolio Management

Reference no: EM132528348 , Length: word count:2500

BFF3121 Investments and Portfolio Management - Monash University

Portfolio Investment Project

The objective of this project is for you to manage your own portfolio by investing $1 million of your imaginary money in any stocks, options, or futures that are traded on the following exchanges: New York Stock Exchange, NASDAQ or American Stock Exchange. You can also execute short selling and trade on margin at an APR of 8%.

The investment project starts when you open an account in 'Investopedia' and invest $1,000,000 in a portfolio of securities on Monday in Teaching week 3. You are then expected to take buy, sell or hold decisions throughout each week over an investment period of seven weeks (including the semester break week). At the end of each week, you will be required to compute your portfolio's holding period rate of return (HPR) for the use in the performance evaluation part of the project.
The formula for computing the weekly HPR is:

For example, the value of your portfolio at t = 0 (which is on Monday in teaching week 3) will be US$1,000,000. If the market value of your portfolio at the end of Monday in teaching week 4 is US$1,020,000, then your HPR in week 1 will be [(US$1,020,000 / US$1,000,000) - 1] = 0.02 = 2%. It is vital for you to compute your weekly HPR's for each of the seven weeks of trading. In addition, you should also monitor the performance of various stock markets to develop a sense of what is happening and to serve as possible benchmarks when evaluating your performance. I recommend that you compute weekly HPR's for the MSCI World Index as well as some of the following: DJI index; FTSE 100 Index; ASX All Ordinaries Index.

You are to perform the role of a portfolio manager whose performance will be
judged against the MSCI World Index - which means that you will be evaluated
against a highly diversified equity portfolio. Your report should be written to your boss - as a report on your performance over the seven weeks.

YOUR REPORT SHOULD CONTAIN THE FOLLOWING:
A printout of the seven-week trading summary obtained from your 'Investopedia' trading account, attached as an appendix. This should indicate that you have engaged in active trading throughout the entire seven weeks period. If the trading summary is not attached, you will get zero marks.
A table with the seven weekly returns, which are converted into monthly returns.
The arithmetic average and standard deviation of your monthly returns, together with
the arithmetic average and standard deviation of the monthly returns of the MSCI World
Index.
The geometric mean of the monthly returns of your portfolio as well as for the MSCI
World Index.
Two approaches to evaluating your performance:
Evaluate your performance relative to the total risk of the portfolio. This would be the case, if you were the only portfolio manager your
boss employed.
Evaluate your performance relative to either systematic risk or residual risk. This would be the case, if you were one of many portfolio managers your boss
employed.
It is important to evaluate the returns of your portfolio under both these approaches.

For the approach that assumes that total risk is relevant to your client, you should:
Show a graph of the CML and indicate where the portfolio is located.
Report the Sharpe ratio for your portfolio.
Report the Sharpe ratio for the MSCI World Index.
Indicate the M2 measure for your portfolio.
Report the proportion of your portfolio's risk that is systematic, which will require that you compute the R2 of the Characteristic Line estimate.
For the approach that assumes only systematic risk is relevant to your client, you
should:
Show a graph of portfolio's Characteristic Line.
Indicate the beta of your portfolio together with a reference to its statistical
significance.
Provide a graph of the Security Market Line and show where your portfolio lies.
Provide the Treynor measure for your portfolio.
Provide the Treynor measure for the MSCI World Index.

Attachment:- Investments and Portfolio Management.rar

Reference no: EM132528348

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