Reference no: EM132928786 , Length: word count:3000

GSBS6140 Investment Analysis - University of Newcastle

Risk-return characteristics of the Australian equity market and its resilience to a global pandemic

The aims of this assignment are two-fold. First, to analyse the risk-return characteristics of the Australian equity market during the pre-COVID, COVID-19, and post-COVID periods. Second, to explore the effects of COVID-19 outbreak, the subsequent government policy responses, and the COVID-19 vaccine news on the share prices of the Australian companies. The first objective should be achieved by calculating returns and different measures of risk, and estimating single factor and multifactor asset pricing models for different subperiods. The second objective can be achieved using an event study, which will be explained in lectures. Information regarding event studies can also be found in the supplementary materials listed at the end of this document.

Each group is expected to select five companies each from two specific GICS sectors where one sector is likely to be more vulnerable to a global pandemic while the other is expected to be somewhat resilient against a pandemic situation.

Getting Started

a) Collect data for daily adjusted closing stock prices from FACTSET.

b) To explore the effect of COVID-19 outbreak, the subsequent government policy responses, and the COVID-19 vaccine news consider three events. For example:

i. The outbreak of COVID-19 declared as a pandemic. The specific dates relating to COVID-19 outbreak can be obtained from the World Health Organization's (WHO) website

ii. The Australian government's announcement of AUD130 billion job keeper package. Event dates with regard to Australian government's stimulus package declarations can be found in news sites.

iii. Pfizer's announcement that their COVID-19 vaccine is 90% effective. Pfizer's announcement data can be obtained from ScienceNews

c) Collect daily data for market (MKT), size (SMB), value (HML) and risk-free rate (RF) for the whole sample for the Australian equity market from the AQR database

d) Ensure that non-trading days (if any) are excluded from the sample. You may identify non-trading days.

Required
The assignment should be provided in a report format. This should include the following sections:
1. Title page (Your assignment cover sheet)
2. Abstract - around 150 words
A concise and factual abstract is required. The abstract should state briefly the purpose of the research, key methodology, the principal results and major conclusions.
3. Introduction - around 500 words
Provide some background information about the assignment topic and a concise review of the relevant literature. State the objectives of your study as stated at the start of this assignment document.
4. Methodology - around 600 words
A description of hypotheses, methods and data employed in the study.
First, explain the methodology relating to estimating returns and measures of risk.
Second, describe estimation procedure of single index model and multifactor model for each of the companies in the sample.
Third, explain the event study approach. The event window covers the event date (for example, the declaration relating to COVID-19 outbreak and announcement of stimulus package), and 7 business days before and 7 business days after the event date (-7, -6, ..., -1, 0, +1, ... +6, +7). The event date (day 0) refers to the relevant announcement date. The estimation period should cover 250 business days ending 50 days prior to the first event date. For example, if first event date is 30 January 2020, then estimation period should be between 21 November 2018 to 15 November 2019.
Consider 30 January 2019 to 29 January 2020 as the pre-COVID period, from January 30, 2020 to May 30, 2020 as the COVID-19 period and 1 June 2020 onwards as the post-COVID period.

5. Empirical results - around 1500 words

5.1 Present descriptive statistics of returns and risk measures for the pre-COVID, COVID and post-COVID periods for individual companies and for weighted average industry portfolio. Provide a comparison.

5.2 Present the regression results for the single index model and Fama-French 3 factor model for individual companies and for weighted average industry portfolio with a concise interpretation.

[Hints: These models will provide you estimates of normal returns.]

5.3 Stock price reaction to COVID-19 outbreak, government's policy response, and Pfizer's COVID vaccine announcements

This section should present the following:
The average ARs over the event window for the selected firms' stocks and statistical significance (at 5% level) of the average ARs. Interpretations of the results. Comment on the average ARs obtained from the Fama-French 3 factor model.
The average CARs over the event window for the selected firms' stocks. (see the textbook for example, page 353). Comment on the average CARs obtained from the Fama-French 3 factor model.
Interpretation of the above, paying separate attention to the period preceding the announcements (outbreak and policy responses), the time of the announcements and the period after the announcements.
A discussion of the implications of your results for market efficiency.
In each of the above cases, provide a comparison between the two industry sectors selected.

6. Limitations of the study - around 150 words

7. References - 100 words

Attachment:- Investment Analysis.rar