英语论文网

ifying mispricing. Therefore, the active portfolio, with its positive alpha value, must lie above the CML. So far, the optimization problem has become a simple application of the construction of optimal risky portfolio from two component assets: active portfolio constructed at first and the passive portfolio represented by market index portfolio.

Considering that the active portfolio is not perfectly correlated with market index portfolio, the efficient frontier consisting of these two components would be a curve as well, similarly to but above the one from the universe of all securities. The optimal capital allocation line (CAL), passing through the risk-free rate and tangent to the new efficient frontier can be obtained by now. The optimal risky portfolio, which combines the active and passive portfolio, locates at the tangency point of the CAL to the efficient frontier. Hence, TB method has successfully exploited mispriced opportunities, while achieving optimal diversification.

Data analysis

To achieve diversification, I have selected 10 stocks from the constituents of the FTSE 250 UK index from 1999 to 2008 and collected monthly returns for this 10-year period. Furthermore, to conduct TB methodology, 3 mispriced stocks from the FTSE 250 are identified. Table 1 reveals the t stat and p-value for the alpha (constant) of each stock, indicating mispricing. Due to short-selling restriction, it can be seen that these stocks are all underpriced, represented by positive alphas.

With the purpose of obtaining an overall understanding of those stocks we are about to use in the portfolio construction, I have implemented an exploratory data analysis, including descriptive statistics, autocorrelation and correlation analysis.

correlation analysis

The table for the overall correlation coefficients can be found in Appendix. It can be seen that only ULTRA ELECTRONICS HDG and JARDINE LLOYD THOMPSON are negatively correlated.

Portfolio construction and comparison

In the following report, I am going to construct optimal complete portfolios based on different methodologies using data in section 3, while comparing them from several aspects.

Markowitz VS. Market value-weighted strategy

The Markowitz portfolio

To construct optimal portfolios based on The Markowitz methodology, the first stage is to construct efficient frontier from the set of risky assets by minimizing the portfolio variance for any given returns. The universe of stocks for our portfolio comprises 10 stocks selected previously for diversification. Due to the restriction of short selling, the lowest and highest returns of the efficient frontier depend on the extreme historical returns of the 10 stocks. The efficient frontier obtained from the 10 stocks is shown in the graph 1.

Then, by maximizing the sharp ratio of the portfolio, the optimal portfolio can be achieved. It is noteworthy that because risk free rate was not constant over the analysing period, the sample average is taken for measurement (0.0038). The weights for each stock and risk return profile of the optimal portfolio are shown in table 4 and 5, respectively. Graph 2 presents the optimal risky portfolio on the efficient frontier.

夏普比率-SHARP RATIO

本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。