Discuss effects of imposing short-sale constraints on market

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Reference no: EM131462453

Download monthly price data for ExxonMobil (XOM) and Pfizer (P) for the period of Jan. 1, 2007 through Feb. 1, 2017 (use Finance.Yahoo.com). Use Excel for this question. 1. Assume that you allocate 40% of your wealth to ExxonMobil and 60% to Pfizer at the beginning of the investment period (i.e. Jan. 2007). If you have $10,000 to invest, how many shares of each would you buy of each stock? 2. Create a column in Excel and apply a range of weights between -1 and +1 (in increments of .1) to ExxonMobil to construct a portfolio consisting of the two shares (remember that the sum of weights should be one; so you can easily calculate the weight for Pfizer. Don't worry if a weight is negative; this is due to “short-selling”). Construct a scatter-plot graph showing the average return and standard deviation of the portfolio. 3. Now apply a constraint on weights: eliminate negative values and allow the weights to range between 0 and 1 only, and re-plot the scatter plot of average returns and variance of portfolio. 4. Eliminating negative weights is called short sales constraints. Compare the results of parts (1) and (2) and discuss the effects of imposing short-sales constraints on a market.

Reference no: EM131462453

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