1. Suppose you have $250,000 to invest. Construct a diversified investment bportfolio (in stock) of six (6) companies traded in the London Stock Exchange that enter the FTSE 100.
(a) Discuss the performance of the portfolio over the last five (5) years using both graphical and numerical methods.
(b) Discuss the risk associated with investment in each asset of the portfolio, supporting your conclusions with empirical evidence.
(c) Discuss the risk associated with investment in the portfolio, supporting your conclusions with empirical evidence.
(d) Calculate the 5% Value-at-Risk (VaR) for each of the three best performing assets of your portfolio and the 1% historical Value-at-Risk (VaR) for the three worst performing assets.
(e) Construct a comparable (in size, profitability, risk) portfolio of assets (stock) traded in the New York Stock Exchange (S&P 500).
(f ) Compare the performance of the portfolio of assets traded in the London Stock Exchange (FTSE100) to that of the portfolio of assets (stock) traded in the New York Stock Exchange (S&P 500) over the last three (3) years.
2. Estimate the company β (beta) for each of the companies in both your FTSE 100 and S&P 500 portfolios. Provide full details of your workings.
(a) Estimate the "market" returns for the New York and London Stock Exchanges using the S&P500 index for New York and FTSE100 index for London.
(b) Compare in each case the "market" and portfolio returns.
(c) Test the statistical significance and interpret the estimated βs (beta) and αs (alpha) for each of the assets in both portfolios.
(d) Test whether the Efficient Market Hypothesis holds for each market. Provide full details of your workings.