Unit Title:
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INVESTMENT MANAGEMENT, RATIONAL & IRRATIONAL MARKETS |
Instructions on Assessment:During semester 1 (week 1 to 10: total 10 weeks) you are required to construct an investment portfolio and manage it. Your objective is to outperform the relevant performance benchmark. Your benchmark is a portfolio consisting of 70% equities and 30% cash. Equity portfolio benchmark is the FTSE 100 Equity Index. Cash benchmark rate of return is LIBOR. You are encouraged to use Bloomberg Financial Database for portfolio construction and analysis.
Trading rules include these: No use of futures or options or short sales and No gearing.
Week 1Start with £1,000,000 and invest in any of the assets including, individual equities, sector indices, equity market indices, ETFs (“exchange traded funds”) or any tradable currency.
During the portfolio management period (Week 1 to 10), you are required to rebalance your portfolio to realise your investment objective. You must value your portfolio and take into account the following transaction costs:
Individual equity switch 1%
Equity index and ETFs switch 1%
Cash (currency) ½%
Week 10At the end of Week 10, stop portfolio management and carry out final valuation.
In your final investment report, you are required to address the following:
- Discuss your investment philosophy and your market view. Make clear what assumptions you made to forecast the market. Based on your market view, explain how your asset allocation decisions match with your investor profiling.
(10 marks)
- Discuss your rebalancing strategies. In this section, you should highlight why you hold or sell each asset and whether the rebalancing changed the nature of your portfolio. Your rebalancing strategies should be supported by relevant traditional investment theories, pricing models and strong academic literature.
(
3
0 marks)
- Evaluate your final portfolio performance. Discuss the absolute and relative performance measures. In looking at relative performance, compare the portfolio return to that of the given benchmark portfolio. You should explain the performance difference between your portfolio and the given benchmark using attribution analysis to reveal your overall asset allocation and equity selection capabilities.
(20 marks)
- Evaluate your risk taking decisions on equity portfolio. How did you quantify the risk for your equity portfolio? Compare the risk-adjusted portfolio return to that of FTSE 100 Equity Index or Hong Kong Hang Seng Index. Discuss how different risk attitudes affect investors’ risk-return trade-off decisions, and why individual investor’s risk attitude may change in different market situations? Your discussion should be supported by relevant behavioural investment theories and academic literature.
(30 marks)
- Evaluate your investment strategies. Identify the relevant behavioural concepts illustrated in your investment strategies. Highlight and reflect upon what lessons you learned about markets and portfolio strategy over the period. (10
marks)
In addition, you
mustsupply the details of all portfolio selections and changes made as an
Appendix.
In order to help you to discuss your portfolio, changes made and also reflect upon your decisions, a discussion board is available within the eLP (Blackboard). The assignment should be word-processed and within an overall word limit of
3,000words (excluding appendices and bibliography). The word count should be stated in the assignment cover page.