Performance Evaluation

Part I. Performance Evaluation

• Choose two companies out of FTSE100 constituents. The list of constituents is available at: http://www.londonstockexchange.com/exchange/prices-andmarkets/stocks/indices/summary/summary-indices-constituents.html?index=UKX

• Download the weekly stock prices of FTSE100 index and two companies of your choice (Company A and B) between 01-September-2017 and 30-August-2018. You can use Bloomberg Terminal or other alternative sources.

1. Complete the following statistics table using the weekly simple returns of all price series. Explain your findings. (10 marks)

2. A risk-averse investor, who maximises his/her expected utility, wants to invest in either Company A or B. Explain your recommendation based on the mean-variance criteria and the indifference curve analysis (i.e. expected utility maximisation). (10 marks)

3. Suppose a risk-averse investor constructed the following portfolios using only Company A and B at the beginning of 2018. Evaluate their historical performance in terms of risk and return on 30-June2018. Explain and discuss your findings. You can use fund performance measures of your choice. (20 marks)

Part II. Essay Write an essay on one of the below topics. (60 marks)

Topic 1. The capital asset pricing model (CAPM) has been widely used for many years by the global financial industry. Despite its popularity, the debate over the valitidy of the CAPM still continues. Drawing on the literature, critically evaluate the use of CAPM.

Topic 2. Using relevant literature and recent evidence, critically evaluate the assertion that investors should not invest in actively-managed funds due to their higher fees and lower risk-adjusted returns than passively-managed funds.

Topic 3. Prior to the official roll-out of MiFID II (the Markets in Financial Instruments Directive II) in 2018, the original MiFID arrived in 2007 just before the financial crisis. Evaluate the shortcomings of the original MiFID and summarise the changes introduced in the new MiFID II.

References you may start with for each topic are:

Dempsey, M. (2013) The Capital Asset Pricing Model (CAPM): The History of a Failed Revolutionary Idea in Finance? Abacus, 49(SUPPL.1), 7–23

Guercio, D., Reuter, J., (2014) Mutual Fund Performance and the Incentive to Generate Alpha. Journal of Finance, 69, 1673–1704.

Degryse, H. (2009) Competition between Fnancial Markets in Europe: What Can Be Expected from MiFID? Financial Markets and Portfolio Management, 23, 93–103

 

 

 

 

 

 

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