For this activity: Identify 12 (or more if you want the project to...

  1. Home
  2. Homework Library
  3. Business
  4. Finance
  5. For this activity: Identify 12 (or more if you want the project to...

QuestionQuestion

For this activity:
Identify 12 (or more if you want the project to be more realistic) publicly-traded firms with which you are familiar. Obtain the monthly prices for these firms and compute the following risk and performance measures for each of those firms.
Mean monthly arithmetic return
Mean monthly geometric return
Standard deviation of return
Beta relative to the market
Idiosyncratic volatility using CAPM
Sharpe ratio
Jensen’s alpha (same as CAPM alpha)
Betas relative to all the factors in the four-factor model
Four-factor alpha

Next, using your risk and performance measures, develop a trading strategy, i.e., use past data to rank firms such that higher-ranked firms are likely to perform well in the future while lower-ranked firms would perform poorly. Create a zero-cost portfolio in which you hold a Long position in firms in the top one third and a Short position in the firms in the bottom third. Compute all the risk and performance measures for this new portfolio.

The data for the project can be obtained from:
Yahoo! Finance
or
Ken French’s data website

To complete this Assignment:
Write a short report (in a Word document, not more than 5 pages, double-spaced) that contains the following:
Exhibit 1: Portfolio that includes all the risk and performance measures for all firms (i.e., a table in which the rows are the various firms and the columns are the various risk and performance measures. This exhibit will be embedded in your Word document and at the end of your report.
Exhibit 2: Annual Returns that include the risk and performance measures of your new portfolio (i.e., the trading strategy) and a plot showing the annual returns (i.e., a table showing the risk and performance measures and a plot chart showing the annual returns. This exhibit will be embedded in your Word document and a the end of your report.)
A brief description of all the calculations used
A brief discussion of any interesting observations from the results of your analysis

Solution PreviewSolution Preview

These solutions may offer step-by-step problem-solving explanations or good writing examples that include modern styles of formatting and construction of bibliographies out of text citations and references. Students may use these solutions for personal skill-building and practice. Unethical use is strictly forbidden.

Calculations used
The first step was to calculate the risk and performance measures for each of the firms. Data was sourced from Yahoo Finance and website of French. Since the market returns are not available, the returns on S&P 500 were used as proxy for market returns. The idiosyncratic volatility was computed using the residual returns as per CAPM. The formula used to find residual return was:
Residual return = Actual return – Return as per CAPM.
The variance of these residuals were obtained to find the idiosyncratic volatility. The residuals were averaged to find the value of alpha also....

By purchasing this solution you'll be able to access the following files:
Solution.docx.

50% discount

Hours
Minutes
Seconds
$275.00 $137.50
for this solution

or FREE if you
register a new account!

PayPal, G Pay, ApplePay, Amazon Pay, and all major credit cards accepted.

Find A Tutor

View available Finance Tutors

Get College Homework Help.

Are you sure you don't want to upload any files?

Fast tutor response requires as much info as possible.

Decision:
Upload a file
Continue without uploading

SUBMIT YOUR HOMEWORK
We couldn't find that subject.
Please select the best match from the list below.

We'll send you an email right away. If it's not in your inbox, check your spam folder.

  • 1
  • 2
  • 3
Live Chats