Discuss effects of imposing short-sale constraints on market

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Reference no: EM131886171

Download monthly price data for Apple, Microsoft, Exxon Mobil, and Johnson & Johnson for the period of Jan. 2000 through Sep. 2017 (use Finance.Yahoo.com). Use Excel for this question.

Create a column in Excel and apply a range of weights between -1 and +1 (with step size of 0.1) to IBM 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 Microsoft. Don’t worry if it gets larger than 1!). Plot a scatter-plot graph showing average return and the standard deviation of the portfolio.

Now apply a constraint on weights: eliminate negative values of weights and change the weight only between 0 and 1 (with step size of 0.05) and re-plot the scatter plot of average return and variance of portfolio.

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.

Repeat previous stages for the portfolio consisting Exxon Mobil and Johnson & John- son. Do you observe any differences between this portfolio and the portfolio of (Apple, Microsoft)?

Reference no: EM131886171

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