Discuss the theories, methods, techniques, and models you used in security selection for your portfolio

Summary of Assignment

You are required to write a report in which you discuss the relationship between the stock market and the economy and economic and financial policies. You will also report on the details of an investment project that you undertake over eight weeks. In this project, you will analyze data of several companies or stock indexes to construct a stock portfolio. You will also manage, trade, and rebalance this portfolio live over eight weeks. Finally, you will provide a full performance evaluation of your stock portfolio.

Project Overview and Goals

You are acting as a portfolio manager for London National Corporation (LNC) clients, your clients have entrusted you with $5,000,000 to invest in the U.S. stock market at your discretion for eight weeks. Your clients are expecting you to invest their money prudently to help them achieve their investment objectives. While your clients desire a high rate of return, their risk tolerance is considered low. Additionally, your clients will be assessing your success in managing their portfolio as measured by the performance evaluation criteria shown below. You will be able to construct and manage your portfolio live on the MarketWatch Virtual Stock Exchange. At the end of the trading period, if your clients are satisfied with your performance managing their portfolio, they will extend their relationship with you, otherwise, they will consider other asset managers.

Investment Policy Statement (IPS)

Following a meeting with your clients you have agreed an investment policy statement with them in which you assessed their risk tolerance to be low, and a return objective equal to the holding period return on S&P 500 + 1%. No withdrawals or additions are allowed during the investment period.

Portfolio Management Rules and Constraints

You are limited to the U.S. stock market

• Each position you take in an asset must be a minimum of 5% of your assets and a maximum of 20% of your assets

• Cash must not exceed 20% of your portfolio at any time

• Transaction cost is flat $100 per transaction

• Trading volume limitation is 1%

• Debt interest rate for leverage is 5%

• Short selling and margin selling are allowed

• Limit orders and stop orders are allowed

Performance Evaluation

Specifically, your clients are concerned about the following criteria:

• Performance measurement: Absolute return as measured by the total dollar increase in the portfolio over the trading period.

• Performance attribution: To assess your skills, clients are interested in a performance attribution of your portfolio returns

• Performance appraisal: Risk-adjusted return as measured by the return on the portfolio taking into account the level of risk assumed by you, using different performance appraisal measures (e.g. Sharpe Ratio).

Sources of Data

Sources that you may find to be particularly valuable for your research include: • MarketWatch: http://www.marketwatch.com/ • Wall Street Journal: www.wsj.com • Yahoo Finance: finance.yahoo.com • Data Stream • Bloomberg • WARDS

a report about your stock portfolio project

  1. Discuss the theories, methods, techniques, and models you used in security selection for your portfolio. In this section you need at least to: • Discuss the approach you followed in security selection (e.g. fundamental analysis vs technical analysis) • Discuss the details of any analysis you undertake to select securities for your portfolio (economy or industry analysis, valuation methods, financial ratios, technical indicators, trends, etc) • Demonstrate the robustness of your analysis by providing a summary of data used, illustrations, and the outcome of your analysis. • Support your discussion with some literature
  2. Discuss the optimization methods and techniques that you followed to construct your portfolio. In this section you need at least to: • Discuss the appropriateness of the approach you followed in portfolio construction/optimization (e.g. Markowitz mean-variance model, Factor models, or other models) • Discuss the details of any analysis you undertake to construct your portfolio (e.g. Markowitz mean-variance model, Factor models, or other models) • Demonstrate the robustness of your analysis by providing a summary of data used, illustrations, and the outcome of your analysis. • Support your discussion with some literature.
  3. Discuss the approaches, methods, and techniques that you followed to manage, execute, trade, and rebalance your portfolio. In this section you need at least to: • Evaluate the appropriateness of the approach you followed in portfolio management (e.g. active, semi-active, passive management) • Discuss the appropriateness of the methods and techniques you follow to manage, execute, trade, and rebalance your portfolio. • Discuss the details of any analysis you undertake to manage, execute, trade, and rebalance your portfolio. • Demonstrate the robustness of your analysis by providing a summary of data used, illustrations, and the outcome of your analysis. • Support your discussion with some literature.
  4. Evaluate the performance of your portfolio. In this section you need at least to: • Discuss the process of stock portfolio performance evaluation (e.g. importance, steps, and best practice) • Discuss the appropriateness of the methods and techniques you follow to evaluate the performance of your stock portfolio. • Discuss the details of any analysis you undertake to evaluate the performance or your portfolio including performance measurement, attribution, and appraisal. • Demonstrate the robustness of your analysis by providing a summary of data used, illustrations, and the outcome of your analysis. • Support your discussion with some literature.

Word count: 3000

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