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UNSW-FINS3640-S2,2010-Week 6
 

UNSW-FINS3640-S2,2010-Week 6

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    UNSW-FINS3640-S2,2010-Week 6 UNSW-FINS3640-S2,2010-Week 6 Presentation Transcript

    • School of Banking and Finance www.banking.unsw.edu.au
    • Stata Wrap-Up
    • Robust Regression
      reg y x1 x2, robust
    • Residual Plot
      reg y x1 ... xn, b
      predict res, r
      predict yhat
      scatter res x1
      sktest res
      Read http://www.polsci.wvu.edu/duval/ps602/Notes/STATA/residuals.html
      Right after running regression
    • Part 1 of the course
      Stata
      Statistics
      Multivariate modeling
      Practical applications
      Identify influential factors and patterns
      Model and forecast stock performance and other business performance indicators (sales, NOPAT, growth, attrition...)
      Reflect in stock selection, portfolio optimization and investment strategy
      Example: "Do Wal-Mart, Target, Woolworths and Coles do well near Christmas?" You can test
    • FINS3640 - Investment Management Modeling
      Part 2
      Week 6 - 25 Aug 2010
      Introduction to using Excel and Matrix Algebra
      for Financial Modeling
    • Discrete return, excess return, continuous return, arithmetic return, geometric return
      Matrix algebra
      Normal distribution, cumulative distribution
      Asset classes: Equity, Fixed income, Alternative asset classes (real estate, venture capital, private equity)
      Index funds, large vs. small stocks
      Standard deviation, variance, covariance, correlation, variance-covariance matrix, correlation matrix
      Annualized values
      Nominal rate
      Utility function
      Fixed income: term structure (market expectation, liquidity premium), duration, convexity
      Equity and fixed income valuation models
      Active and passive portfolio management
      Efficient market hypothesis
      Behavioural finance
      Modern Portfolio Theory
      Risk and Return
      CAPM
      Single-index model (SIM)
      Efficient frontier with and without short-sale
      Capital Market Line
      Security Market Line
      Portfolio Adjustments
      Assumptions of each model
      Revision (you should have known)
    • Required Reading: Reeves J. J. 2008
      Simon Benninga (SM), Financial Modeling 3e
      Chapters 1, 8-13, 15, 18,25-29, 31, 33-35
      http://finance.wharton.upenn.edu/~benninga/
      Bodie Kane Marcus (BKM), Investments 8e
      Chapters 1-9, 11-16, 18, 24-27
      Other materials that cover the same concepts are accepted
      http://www.mhhe.com/bkm
    • James Farrell, Portfolio Management, 2e
      Recommended Reading
      Philippe Jorion, Value at Risk, 3e
      http://merage.uci.edu/~jorion/
    • Motivation: Why study Portfolio Management?
      What funds do
      Optimal inventory
    • Where would you be?
    • Quantitative Approaches
    • Assumption
      Absence of transaction costs
    • Arithmetic
    • Number of trading days per year
      #days per year = #days in observed period / #years
      252 is generally accepted
    • Returns
    • Annualization
    • Matrix Algebra using Excel
    • Matrix Algebra
      You should know
      Scalar
      Uniform matrix, identity matrix, diagonal matrix
      Matrix addition and subtraction
      Matrix multiplication
      Matrix inversion
    • Matrix Multiplication
      m: number of rows
      n: number of columns
    • VAR
      VARP
      STDEV
      STDEVP
      COVAR
      CORREL
      TRANSPOSE
      SUMPRODUCT
      MMULT
      MINVERSE
      Ctrl+Shift+Enter
    • Week 6 Exercises
    • Portfolio Expected Return & Variance
    • Case
    • One Stock Universe
    • Annualized Return
    • Variance-Covariance Matrix
      We hence name variance-covariance matrix 
    • Efficient Frontiers with Excel Solver
    • Activate Solver
    • Some Excel Techniques
    • Enable Macros
    • Ctrl+1
    • Context Menu Bar: Select the object then observe the Ribbon
    • Context Menu: Right-Click