CAPM and Portfolio Analysis; Faculty of Business Environment and Society

CAPM and Portfolio Analysis; Faculty of Business Environment and Society

This assignment should be submitted to Turnitin via Moodle.

Please note:
1.    All work submitted after the submission deadline without an approval will be given a mark of zero. (This is not the same as a non-submission, as a late submission counts as an attempt and a mark of zero may allow you to resit the coursework).
2.    Deferrals can be granted on the basis of mitigating circumstances. Please note that reasons such as theft, loss or failure to keep a back-up file are not valid reasons for deferral. For guidance on applying for deferrals, see the course student handbook.
Students MUST keep a copy and/or an electronic file of their assignment.

The electronic version of your assignment may be used to enable checks to be made using anti-plagiarism software and approved plagiarism checking websites.

Word Length:

There is a considerable amount of numerical work to be undertaken. The narrative components ought to be in the range of 1000-1500 words.

Learning Outcomes Assessed

In completing this assignment the students should be able to:

1.    Demonstrate an ability to apply appropriate numerical and quantitative techniques to measure security returns and price volatility.
2.    Demonstrate an ability to apply appropriate numerical and quantitative techniques to measure portfolio returns and risk.
3.    Engage in an informed assessment of discussions and debates relating to methods of portfolio analysis.

Return of Marked Work
Marked work will be returned online.  You should expect to have marked work returned to you by 3 weeks after the submission date

PLAGIARISM WARNING – Assignments should not be copied in part or in whole from any other source, except for any marked up quotations, that clearly distinguish what has been quoted from your own work. All references used must be given, and the specific page number used should also be given for any direct quotations, which should be in inverted commas. Students found copying from the internet or other sources will get zero marks and may be excluded from the university.

Coursework Tasks

The accompanying Excel spreadsheet provides five years of monthly adjusted share price data for four companies. They are:

Easyjet PLC        Airlines
Marston’s PLC        Brewing
Balfour Beatty        Construction
Pace            Technology

The spreadsheet also lists the corresponding values for the FTSE All-Share Index

Task 1

a.    Using the first three years of data (October 2009 to October 2012) regress the monthly log-normal returns of the five companies against the log-normal returns for the FTSE All-Share Index. (You can use the Regression function in Excel ‘Data Analysis’)
(15 per cent)

b.    Briefly analyse the relationship of the individual security performances to the performance of the FTSE All-Share, focusing in particular on the alpha, beta and R2 estimates.
(10 per cent)
Task 2

Assume that at the start of October 2012 you owned an equally weighted portfolio of the four companies.

a.    Calculate the actual annual return on the FTSE All-Share Index for both years starting from October 2012 and October 2013.
(10 per cent)

b.    Take the FTSE All-Share returns as market returns and, using the alpha and beta sample estimates generated in Task 1, calculate the expected annual returns for each asset and for the portfolio using the Single Index Model approach.
(10 per cent)
Task 3

a.    Calculate the actual annual returns for each company and for the portfolio over the period from October 2012 to October 2014.
(10 per cent)

b.    Compare the actual and expected returns and comment on the scale of the abnormal returns over the two-year period from October 2012 to October 2014 for both the individual companies and the portfolio.
(15 per cent)

Task Four

Assess how well the model performed in predicting the actual return on the portfolio, given that it was based on a restricted sample of historical data.
(30 per cent)


Portfolio Management

MODULE GUIDE   2014-15

This document is designed to supplement information contained in the University’s Web based Module Information Directory
Students should consult the MID entry for information on;

Module summary    Teaching Learning and Assessment

Module resources    Module organisation.

1.    Module delivery

If you have a disability or medical condition and need an adjustment to allow you to fully participate in this module (e.g. different format of literature, clear communication for lip reading, breaks for medication, etc.) please tell your lecturer so that arrangements may be made.

1.1    Teaching Plan

To complete the module successfully, attendance at all classes is advised. Students are also expected to work independently, undertake any required background reading or practice exercises and actively participate in seminars or other small group work.  If allocated to a seminar group, students should remain with that group.

Week    Method of Delivery    Topic
1    L + S    Introduction to portfolio management.
2    L + S    The measurement of risk and return
3    L + S    Markowitz portfolio theory.
4    L + S    The Capital Market Line and the CAPM
5    L + S    Using the CAPM for portfolio management.
6    L + S    Testing the CAPM – Single Index Model.
7    L + S    Efficient market theory.
8    L + S    Passive fund management and EMT.
9    L + S     Active fund management and alpha returns.
10    L + S    Behavioural finance and the critique of modern portfolio theory.

1.2    Module tutors

Module Leader    Room    E-mail    Telephone
Tony Kilmister    WM121

Surgery hours:     Monday 12.00-2.00.
Tuesday 11.00-1.00

Messages can be left at reception in the William Morris building or emailed to the tutor.

1.3       Use of Module web
The module web will be used to convey module resources such as lecture and seminar handouts and announcements.

2.    Module Assessment

The assessment method and coursework weighting can be found in section 1 of the MID entry for this module on

The assessment for this module consists of one examination [70% of module mark] and one coursework [30% of module mark]. The coursework assessment takes the form of one piece of written work.

2.1    Coursework Assignments
Further details will be published on the module website.

2.2    Coursework deadlines

Coursework Assignment    Day    Month    Year
5    December    2014

Late Work
All work submitted after the submission deadline without an approved reason  will be given a mark of zero. This is not the same as a non-submission, as a late submission counts as an attempt and a mark of zero may allow you to resit the coursework (see section 2.6 on referrals).
You should note that short deferrals (extensions) of up to three calendar weeks can only be given for genuine “force majeure” and medical reasons, not for bad planning of your time. Please note that theft, loss, or failure to keep a back-up file, are not valid reasons. The short deferral must be applied for on or before the submission date. You can apply for a short deferral by submitting an Examination/ Coursework Deferral Application Form. Application Forms along with the supporting evidence should go to the relevant Student Support Office (WM404 or GE103), for undergraduates, or Postgraduate Reception (WMG29). For a longer delay in submission a student may apply for a (long) deferral. See your programme manager for details.
Examination/Coursework Deferral Application Forms are available from the BES reception, the Student Support Offices in WM and GE buildings, or the BES Faculty website.

2.3    Coursework submission

Details of the arrangements for coursework submission are set out in the document “Coursework Submission”. If you did not collect a copy of this document at enrolment you can download it from the BES Faculty website or collect a copy from reception.

You should always enter your name and complete all other details on a BES coursework cover sheet and also ensure that your student ID number and the module number are on the front page of the coursework itself.

You must check that all your coursework marks have been recorded accurately on the module web and notify your module tutor if you believe a mistake has been made.

NB. It must be stressed that all marks notified to you during the year are provisional until confirmed by the end of year Subject Assessment Board. It is possible that notified marks may be raised or lowered by this board.

Students MUST keep copies (electronic or photocopies) of all coursework submitted on this module.

2.4    Plagiarism

Students are advised to consult the University Regulations* and their course handbooks regarding the penalties for and definition of plagiarism, which essentially is the deliberate and substantial insertion in your own work of material from someone else e.g. a published source such as a book or article, or simply another student’s piece of work, without acknowledging the extent or source or clearly marking up the quotation in inverted commas.

*To view regulations use the University website.


1. Whenever requested by your module leader, you should upload a WORD copy of your work onto the relevant icon on your module web for plagiarism checking. If you do not do this then your work will not be marked.
2. Drafts of assessed work for any particular module should only be uploaded onto the draft icon on that module web, as this draft icon will be configured so that the final submission will not flag up overlaps with the draft submission. If you submit a draft onto any other module web then Turnitin will identify any overlaps with your final submission as plagiarised.
3. You should never submit anyone else’s work onto Turnitin under your own name and you should never ask anyone else to submit your work onto Turnitin under their name.
4. Normally students are only allowed to submit one draft of an assessment via Turnitin. If the guidance on plagiarism has been followed, and the student has written the work themselves, this should be sufficient.

For further guidance on the use of Turnitin please see your module web, ask your tutor or contact the CUOnline helpdesk.

2.5    Form of Examination

The examination will comprise a two hour unseen paper.

You are reminded that the form of the examination may be subject to revision. More information on the structure of the examination paper and what is expected of students in the examination will be provided during the revision session.

2.6    Referral

You must have attempted the coursework (and examination, if appropriate) at the first attempt to be eligible for a re-sit.

If you are referred in a coursework component you will be normally required to submit a complete new set of assignments. Students should look on the BES Faculty website to obtain referred work for assessments and the exact deadline date. (The deadline will be normally be  in mid-August,  just before resit examinations commence.) The referred examination timetable will be published on the university website


The essential textbook(s) recommended for purchase is / are:-

Author    Date/
Edition    Title    Publisher    Library shelf number
EJ Elton, MJ Gruber, SJBrown & WN Goetzmann    2010
8th Edition    Modern Portfolio Theory and Investment Analysis    Wiley    332.6 ELT
R A Strong    2009    Portfolio Construction, Management, Protection    South Western    332.645 CUT

3.1    Web sites

Site    url    Comments

Financial Times


Yahoo Finance


World Bank


A variety of subject generic Web links are accessible via the BES Faculty website.

3.4    Other resources

Additional resources can be found in the module’s Moodle site


Students enrolled on this module will have the handouts detailed below made available to them via this web site.

4.1    Lecture Notes

Topic    Location
Introduction to portfolio management.    CUonline
Markowitz portfolio theory.    CUonline
The capital asset pricing model.    CUonline
Applying CAPM to portfolio analysis.    CUonline
Testing the CAPM.    CUonline
Efficient market theory.    CUonline
Passive fund management and EMT.    CUonline
Active fund management and alpha returns.    CUonline

4.3    Past examination papers

Copies of previous years’ examination paper can be accessed online via CURVE.
Students are warned that the format of the examination paper may be subject to variation.

Parameter Estimation Period
Date    Company Share Prices October 2009-October 2012
Easyjet    Marston    Balfour    Pace    FTSE All Share
10/1/2009    387.2    73.5    209.6    204.3    2593.8
11/2/2009    372.9    66.6    208.7    206.6    2611.9
12/1/2009    379.9    67.5    203.1    192.2    2710.2
1/1/2010    361.9    71.0    200.4    192.5    2807.0
2/1/2010    409.7    71.9    210.2    176.8    2689.0
3/1/2010    429.8    73.7    218.7    175.0    2764.6
4/1/2010    483.3    74.6    228.8    176.2    2943.9
5/3/2010    484.3    74.6    234.4    170.4    2792.5
6/1/2010    423.1    75.9    203.1    146.1    2661.7
7/1/2010    401.3    75.2    185.5    147.0    2485.7
8/2/2010    417.5    79.7    205.5    199.8    2784.2
9/1/2010    368.4    77.3    194.4    191.8    2767.5
10/1/2010    377.6    77.2    210.8    168.7    2889.7
11/1/2010    465.3    83.3    223.4    187.3    2945.6
12/1/2010    445.1    87.0    230.3    170.3    2919.4
1/4/2011    469.1    93.7    262.0    170.0    3119.0
2/1/2011    386.5    86.4    273.0    179.5    3091.0
3/1/2011    363.3    81.5    275.8    196.6    3079.7
4/1/2011    341.0    81.4    274.8    143.3    3116.8
5/3/2011    361.6    91.1    270.0    149.9    3160.9
6/1/2011    373.0    91.1    253.3    107.2    3092.5
7/1/2011    370.6    90.8    259.7    101.1    3120.3
8/1/2011    373.2    85.8    234.0    105.7    3004.4
9/1/2011    357.2    81.4    204.6    103.7    2812.6
10/3/2011    352.8    77.0    201.8    88.5    2628.4
11/1/2011    351.7    80.6    206.6    68.0    2795.6
12/1/2011    389.6    81.7    212.1    49.1    2824.7
1/2/2012    402.7    82.6    236.7    68.6    2923.6
2/1/2012    458.7    87.3    236.2    82.9    2990.3
3/1/2012    460.6    87.1    235.4    84.8    3073.7
4/2/2012    467.6    89.4    241.8    68.4    3053.4
5/1/2012    492.9    88.1    230.9    72.4    3020.6
6/1/2012    465.5    87.4    232.0    87.7    2732.7
7/2/2012    510.7    95.0    264.2    100.1    2927.1
8/1/2012    538.1    100.5    240.4    150.3    2963.3
9/3/2012    512.1    102.9    244.1    172.1    2996.5
10/1/2012    567.8    105.1    271.0    164.8    3038.3
Performance Assessment Period
Date    Company Share Prices October 2012-October 2014
Easyjet    Marston    Balfour    Pace    FTSE All Share
10/1/2012    567.8    105.1    271.0    164.8    3038.3
11/1/2012    608.6    116.6    276.5    178.6    3064.7
12/3/2012    698.4    114.4    226.7    177.9    3067.1
1/1/2013    734.8    116.9    249.2    183.6    3159.7
2/1/2013    923.5    125.6    236.9    222.8    3327.2
3/1/2013    997.8    131.9    252.3    228.1    3358.3
4/1/2013    1059.6    133.4    210.0    237.2    3420.0
5/1/2013    1108.6    137.8    190.7    244.6    3402.3
6/3/2013    1197.9    137.6    209.6    247.6    3443.6
7/1/2013    1321.5    136.4    203.3    246.6    3338.6
8/1/2013    1403.9    149.0    231.3    313.6    3543.7
9/2/2013    1259.7    152.2    237.2    286.4    3460.5
10/1/2013    1293.1    139.3    259.9    255.1    3445.1
11/1/2013    1271.5    145.5    266.7    303.7    3586.0
12/2/2013    1388.2    143.7    241.8    306.8    3519.5
1/1/2014    1507.0    140.0    272.2    313.9    3595.8
2/3/2014    1604.1    143.2    266.3    347.4    3472.4
3/3/2014    1675.0    145.0    297.6    398.1    3608.6
4/1/2014    1773.0    146.4    282.1    451.3    3584.5
5/1/2014    1653.0    144.7    275.9    357.6    3633.6
6/2/2014    1559.0    150.8    226.4    359.9    3666.6
7/1/2014    1349.0    147.0    224.9    352.4    3630.4
8/1/2014    1298.0    140.5    235.5    315.5    3559.0
9/1/2014    1342.0    148.0    230.7    328.5    3644.6
10/1/2014    1396.0    140.7    171.8    296.7    3499.0


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