Learning Outcomes

This assignment has been structured in accordance with the following Graduate Attributes:
- Ability to demonstrate the quantitative skills taught in the unit.
- Use of computing skills to effectively present information.
- Ability to apply theoretical and statistical concepts in analysing information.
- Ability to apply critical thinking.
- Ability to provide recommendations based on research results.

General Instructions

i. Each student should select two companies from the excel file (ASX 100 Constituents by GICS.xlsx) available on blackboard under Assignment Instructions for the assignment. These two companies must belong to two different GICS. The companies have been selected from the top 100 listed firms trading on the Australian Stock Exchange.

ii. Your task in Part -A is to utilise the quantitative methods covered in the unit to demonstrate your analytic skills. This part has a weightage of 60% of the total assignment.

iii. You are required to submit a report along with an excel worksheet for Part-A of the assignment. For example, Q1(a) in part-A should have the HPRs and the Plot along with the formula used to calculate the returns.

iv. Part-A will be submitted via blackboard assignment submission. The specific link will be made available under Assignment on Blackboard.

v. Part B tests your research skills and requires you to write an essay on specific topics with some real world examples. This part has a weightage of 30% of the total assignment (10% weightage is for overall presentation of your final report and excel workbook). You are required to submit a separate report for Part-B of the assignment.

vi. Part B will be submitted via Turnitin. The specific link will be made available under Assignment on Blackboard.

vii. For timely completion, the assignment requires both Part-A and Part-B completed simultaneously.

viii. Observe ECU referencing conventions. Failure to acknowledge work from others is a serious act of Academic Misconduct and carries severe penalties. Apply in-text and end-text referencing methods as set out in the ECU Referencing guide.

ix. Your Turnitin similarity score for Part-B should be no more than 30%. Avoid taking direct quotations from your reference material as this will increase the score. Good writing and communication is evidenced by a student's ability to paraphrase their readings.

x. Ensure your final report is written and presented well. You should aim to produce high-quality work consistent with professional standards.

Part-A Quantitative Skills

You are required to perform quantitative analysis on two Australian company included in the S&P/ASX 100 Index over a period of two years, i.e. from July 2014 to June 2016. The list of companies is given in the file ASX 100 Constituents by GICS.xlsx available on blackboard under Assignment Instructions-ECF2226.2016.1. These two companies must belong to different GICS.
This part requires you to model/calculate all the solutions using excel and also present the results in a word file. The final submission requires a document (pdf or word file) and the excel workbook.

Question-1: HPR, AAR and GAR.

Select one company from the list and download monthly prices from July 2014 to June 2016 from DatAnalysis database and save the data in an excel workbook. You can select any company from the list. Calculate the following in an excel workbook and also copy paste the final answers in the Part-A document.

a) Calculate monthly HPRs using the adjusted closing prices for the company during the two year time period. Plot these results on a line graph.

b) Calculate the following summary statistics for your returns
i. Variance and Standard Deviation
ii. Minimum and Maximum returns

c) Calculate the Arithmetic Average and Geometric Average returns for the company.

d) Assume you had a savings of $50,000 and had invested the money in your selected company at the beginning of the period. Calculate the number of shares you bought given the brokerage fee of $30 for every transaction (buying or selling).

e) You decided to hold your position for these two years and now decide to sell your shares in the market. Calculate the amount you will gain or lose based on the last market price of the share. You must adjust the amount for brokerage fee as given in (d).

Question-2: Daily Value at Risk

Select another company from a different GICS than the company selected in Question-1 and download daily stock prices (adjusted closing prices) from 1 July 2014 to 30 June 2016 for both the companies. The data can be downloaded from Yahoo Finance or DatAnalysis for both companies. You must mention the source in your solutions and use only one source for both stocks.

a) Calculate the daily 1% and 5% Parametric VaR (based on normal distribution) along with 1% and 5% Historical VaR for time series returns for both the stocks.

b) Suppose you invested $50,000 each in both stocks. Express the VaR calculated in (a) as Dollar-VaR and compare the VaR for both stocks.

Question-3: Portfolio Selection

Use the daily stock returns calculated in Question-2 for the two stock and calculate the following

a) Correlation and Covariance for the stock returns
b) Use various weight combination to plot an efficient frontier.
c) Minimum Variance Portfolio weights for the portfolio with these two stocks.

Question-4: The Capital Asset Pricing Model

Download daily stock index values for ASX-All Ordinaries for the same period as of the two stocks. The data can be downloaded from Yahoo Finance, Google Finance, Quandl etc1. You must mention the source in your solutions. Assuming the risk free rate of 2.25% per annum;

a) Calculate the value of ?? for both the stocks using regression analysis.
b) Plot the security characteristic line for both the stocks.
c) Compare the level of market risk ?? of both of your stocks.

Part-B

Write an essay on the following topics. The maximum page limit for this part is 6 pages, excluding references. You are required to paraphrase the relevant literature to demonstrate your understanding of these topics. You should be able to refer to relevant literature and other material using ECU referencing guidelines.

The final submission requires a document (pdf or word file) submitted via the Turnitin link.

1. Modern Portfolio Theory

Write a short note on Modern Portfolio Theory and minimum variance portfolio. Discuss the benefits of efficient diversification with examples from Part A (Question-3) and other sources.

The discussion should highlight the benefits of diversifications as a result of MPT. The actual Markowitz portfolio model should be presented with all important formulas/equations with a thorough understanding of all the components. You must discuss the results of

Question-3 (Part-A) as an example.

2. The Capital Asset Pricing Model

Discuss the Capital Asset Pricing Model with examples from Part A and other sources.

You should be able to critically examine the Capital Asset Pricing Model and discuss the results from Question-4 (Part A) as an example. The discussion should include the major assumptions and components of CAPM and its advantages over MPT.

3. The CAPM and Multifactor Models

Discuss the Fama-French factor model. Compare and contrast CAPM and the Fama-French three factor model.

You should discuss the Fama French factor models including its components and major results. There should be a clear understanding of all the risk factors included in the Fama-French Model and its major assumptions. The discussion should compare The Fama French Model with the CAPM.

Attachment:- ASX-100-Constituents-by-GICS.xlsx