GSBS6143 APPLIED PORTFOLIO MANAGEMENT
WRITTEN ASSIGNMENT 3 (RESEARCH PROJECT)
Maximum word count: 3000 words
Format: 1.5 spaced, word-processed document with font size of 12 point.
The spreadsheet research project data.xls contains financial markets data that is used for this project. You are required to submit both an Excel spreadsheet that shows your workings (in a separate link) and a word file (in turnitin) with a report. The word file should be a stand-alone report which will be marked. The Excel spreadsheet will not be marked but should be submitted so that your working out can be checked as required. One group must submit only one report.
Late submissions: The mark for an assessment item submitted after the designated time on the due date, without an approved extension of time, will be reduced by 10% of the possible maximum mark for that assessment item for each day or part day that the assessment item is late. Note: this applies equally to week and weekend days.
WRITTEN ASSIGNMENT 3 (RESEARCH PROJECT)
Australasian Capital Management Company Limited has appointed you as a fund manager. Your first task in this new position is to establish a long-only, 100% equities systematic fund to manage a $1 billion pension fund.
You have been given a brief that your portfolio should be based on a belief that investors are vulnerable to behavioural biases and information incorporation in stock price is subject to investors’ under- and/or overreaction. Additionally, investors are heterogenous with regard to degree of risk tolerance, investment horizon and tax status. However, you have been given autonomy to select particular trading strategy, which will be used to implement the core belief or philosophy.
You are only permitted to invest in domestic equities and are provided with a list of stocks that comprises your feasible set of investments. This list is available on Blackboard in the Written Assignment 3 (Research Project) data.xls spreadsheet. The portfolio is required to comprise 20 stocks in each year. You have the autonomy to select portfolio formation and evaluation period. However, this choice should be consistent with the theory and previous empirical evidence. The performance of your portfolio should be assessed against a benchmark.
Your group is required to complete the following:
Develop a clear and succinct investment philosophy that outlines the core beliefs of the fund that you are managing. In particular, you should explain your ideas about how markets work and an overview of how an investment strategy can exploit this philosophy.
Using evidence from academic studies, justify your investment philosophy. This section should include a discussion of the evidence related to the investment strategy you have chosen and a discussion of the efficacy the investment strategy or strategies.
Devise and explain a systematic trading system for your investment fund based on your investment philosophy. You should clearly justify your decisions. Your system should consider the following: method applied to select securities in each investment period and scheme for weighing stocks in your portfolio.
Apply your systematic trading system to identify the stocks that you would have included in your portfolio and their relative weightings over the sample period. You should rebalance your portfolio in a frequency (for example, 6-month, 1-year, 2-year etc.) that is consistent with your investment philosophy, your strategy and previous empirical findings. Make sure you clean the data and properly handle missing observations before conducting any numeric analysis.
Examine the performance of your portfolio across the selected sample period using the portfolio performance measures typically used by fund managers.
Discuss the performance of your strategy compared with your benchmark and discuss whether your performance is consistent with academic evidence regarding the performance of your investment style.
Report the performance of your portfolio across time. In the case of a time-varying performance of your portfolio, identify any global economic, political or social factor that may have caused this time-variation.
Delineate any ethical considerations you need to maintain while you manage the portfolio.
Provide an oral presentation of your report (10 minutes maximum) where you outline all of the information mentioned above.