Guan: Modern Portfolio Theory and Portfolio Analysis Essay

Submitted By GavinWang1
Words: 706
Pages: 3


M.Sc. Finance, M.Sc. Investment & Finance, M.Sc. International Accounting and Finance and M.Sc. International Banking & Finance

AG924 Portfolio Theory Management

Group Assignment[1]

Submission Deadline: 4pm Thursday 21st March 2013[2]

Lecturer: Professor Krishna Paudyal (

This assignment is to be completed in groups of 3 (form your own) – groupings should be e-mailed to Barbara no later than 5pm on Monday 25th of February

Assume that you have been working as a team member of the Domestic portfolio management unit of Portfolio Management Department of a large mutual fund. The recently appointed Director of the Department holds only limited knowledge of portfolio management as he comes from retail banking business. Although he has heard of a possibility of using the Single Index Model (SIM) in portfolio analysis he is not fully familiar with it. Therefore, your team is assigned with a responsibility of preparing a written report commenting on the usefulness and reliability of the SIM in portfolio analysis with appropriate examples of estimating relevant parameters. Using the data file (PTM- 2013.XLSX) available on ‘Myplace’ within the site of the ‘AG924 - Portfolio Theory and Management’ estimate the following and prepare a report for the use of the Director of the Department.

The data file (PTM- 2013.XLSX) has two sheets and includes the following information:

a) Monthly return index of the constituents of the FTSE 100 index for a period between December 31, 2002 and December 31, 2012 (sheet: RI).

b) Market value of each of the firm in the Index as at 31 December 2012 (sheet: MV).

c) Value weighted market return index (FTALL Share index) for the same period as above (sheet: RI).

Your report should include the estimates based on the following:

1) Select 25 stocks randomly from the data set for your use.

[Note: If any company in the file has less than 3 years’ data do not include that company in your sample. An appendix in your report must include the list of your sample stocks.]

2) Compose portfolios of 1, 5, 10, 15, 20 and 25 stocks from your sample stocks.

[Note: you may randomly select the required number of stocks to compose a portfolio from the pool of your 25 stocks selected at step 1. Make sure that none of the stocks appears more than once in the same portfolio. Also, include a list of your sample stock(s) in each portfolio.]

3) Using the SIM and naïve diversification (i.e. equal investment on each stock in the portfolio) estimate the following:

a) The β (beta) of all firms in your sample.

b) Portfolio return of each of the six portfolios composed in part (2) above.

c) α (alpha) and β (beta) of all six portfolios.

d) Portfolio risk (standard