Portfolio and Markets Analysis - Security’s Basic Statistics - Accounting & Finance Assignment Help

Assignment Task

Aim and objectives:
This coursework aims to apply the techniques gathered from lecture 1 to 6. In particular, we will be (i) estimating security returns, standard deviations, betas, covariances and correlations; (ii) selecting securities using the Critical C approach; (iii) clarifying the corrections and limitations of estimating betas using historic price information. Steps:
(i) Estimating security’s basic statistics
Select a sample of at least 10 different quoted companies on well-organised stock exchanges. Typical stock exchanges are London Stock Exchange and New York Stock
Exchange. Obtain the sample companies’ monthly share prices for the latest 5 years. Estimate for each company its average return, standard deviation, beta and its covariance and variance matrix with the other sample companies.
(ii) Obtain a suitable risk-free rate and using the technique from Lecture 1 (Chapter 6 EGBG) to determine the portfolio weighting of each security for the efficient portfolio (i.e. where the capital market line touches the efficient frontier).
(iii) Selecting securities for the optimal portfolio
Using the techniques discussed in Chapter 9 of EGBG and assuming that (a) short sales are not allowed and (b) short sales are allowed, determine the optimal composition of your portfolio.

Some additional considerations:

a. Sample period: Typically, empirical researchers use a 5-year period for the estimation of betas. What would happen if we use a longer or shorter period?

b. Data frequency: Return can be measured over daily, weekly and monthly intervals. How sensitive is beta to the return intervals?

c. Discuss and implement beta adjustments.

d. Should return be measured as continuous or discrete?

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