The Rate Of Return On A Stock

The Rate Of Return On A Stock
According to the records from Bloomberg, it is common that the rate of return on a stock to vary
over the course of time. Therefore, we normally prefer to base on average rate of return to calculate
the expected return of these stocks. Also, standard deviation is widely used in evaluating the
investment risk of assets. Those stocks that have higher standard deviations are more likely to be
exposed to higher risk, vice versa.
Table 1.1
Disney Visa Priceline
Mean 2.29% 2.63% 5.37%
Standard Deviations 7.07% 6.14% 11.84%
Chart 1.2 From Table 1.1, Priceline has the highest mean and standard deviation, 5.37% and 11.84%
respectively, which means that its the rate of return is 5.37%±11.84%. As shown in the chart 1.2, the
range of fluctuation ... Show more content on Helpwriting.net ...
Table 1.3
Correlation Disney Visa Priceline
Disney 1 0.381875395 0.351265078
Visa 0.381875395 1 0.541320605
Priceline 0.351265078 0.541320605 1
The correlation coefficient, called the quantity r, measures the strength and the direction of a linear
relationship between two variables. The correlation coefficients among these companies are all in
the [–1,1] interval that there is not exist any perfect positive and negative correlation. From the data
we have calculated in Table 1.3, the correlations of Disney and Visa, Disney and Priceline are 0.382,
0.351 respectively, which are generally described as low degree of correlation. Whereas the
correlation of Visa and Priceline is 0.541, it regarded as moderate degree. Thus, Disney is more
correlated with Visa than it is with Priceline; Visa is more correlated with Priceline than it is with
Disney. When it comes to portfolios, correlation describes the degree of relationship between the
price fluctuations of those assets included in the portfolio. Securities with the perfect negative
correlation would build a most diversified portfolio. By contrast, the worst diversified portfolio's
correlation is +1. Among three portfolios we have built up with each two companies, the most
diversified one is Disney with Priceline while the worst one is Visa with Priceline.
1: Visa + Priceline.
2: Disney + Visa.

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Modern Portfolio Theory
MBA
Corporate Finance II
Final Paper
Table of Contents
1. Title Page pg. 1
2. Table of Contents pg. 2
3. Introduction/ Executive Summary pg. 3
4. Modern Portfolio Theory pg. 3
5. Portfolio Management pg. 4
6. Controlling the Risk pg. 5
7. Diversification pg. 6
8. CAPM pg. 7
9. Beta: Advantages and Disadvantages pg. 8
10. Options pg. 10
11. Hedging pg. 11
12. Net Present Value (NPV) pg. 12
13. Technical Indicators: pg. 14

14. Efficiency Frontier pg. 15
14. Conclusion pg. 16
15. Bibliography pg. 18
16. Bonus Assignment– Investing Websites ... Show more content on Helpwriting.net ...
So in different types of situation we will get different types of return depending on which type of
investment it is and what the economic situation is at the time (www.xpresstrade.com).
Portfolio Management:
By selecting securities that have little relationship with each other, an investor is able to reduce
relevant risk. Ideally, one would combine their securities in a way that will reduce relevant risk,
such as diversification, to optimally manage their portfolio. The decision to invest excess cash in
marketable securities involves not only the amount to invest but also the type of securities to invest.
To some extent, the two decisions are interdependent. Both should be based on an evaluation of
expected net cash flows and the uncertainty associated with these cash flows. In future cash flow
patterns are known with reasonable certainty and the yield curve is upward sloping in the sense of
long–term securities yielding more than shorter–term ones, a company may wish to arrange its
portfolio so that securities will mature approximately when the funds will be needed. Such a cash–
flow pattern gives the firm a great deal of flexibility in maximizing the average return on the entire
portfolio, for it is unlikely that significant amounts of securities will have to be sold unexpectedly.
Controlling the risk
The simple and timeless definition of risk is the chance of suffering a loss. Portfolio management is
largely about managing risk. All

Capital Ideas: the Improbable Origins of Modern Wall...
Capital Ideas: The Improbable Origins of Modern Wall Street In his book, Capital Ideas: The
Improbable Origins of Modern Wall Street, Peter L. Bernstein examines the innovative financial
work of various academics that helped shape modern Wall Street. Bernstein sets out to show that
Wall Street is in fact a fundamental and useful model to follow, rather than something to be feared.
He points out that, "By combining the linkage between risk and reward with the combative nature of
the free market, these academics brought new insights into what Wall Street is all about and devised
new methods for investors to manage their capital." (2) These impressive scholars have incorporated
scientific measurement to the art of finance, forever ... Show more content on Helpwriting.net ...
The important implication of this is that investors cannot consistently outperform the market, and if
they do it is purely through luck. With competition for information reaching new heights,
professional managers face greater difficulties in attempting to outperform each other. If these
professionals are unable to consistently beat the market, there remains little hope for the average
investor. Franco Modigliani and Merton Miller examined how a corporation should select securities
to sell in order to attain an optimal mix between debt and equity, the mirror image of what
Markowitz and Tobin had studied. Their findings led them to the conclusion that the market value of
a firm is independent of its capital structure. In an efficient market, the market will place the same
value on firms with equal earnings power and equal risk. Their most innovative contribution to the
theory of finance was in elevating arbitrage to the level of a driving force. This Law of One Price
states, "two assets with identical attributes should sell for the same price... a profitable opportunity
will arise to sell the asset where it is overpriced and to buy it back when it is underpriced. The
arbitrager will then lock in a sure profit, otherwise known as a free lunch." (171) In effect,
arbitragers actually fix the imperfections in the market by bidding away the

Exchange Traded Funds
Internationally, the flow of capital across national borders and into markets once believed to be
impregnable is occurring at the speed of light. Technological innovation, accessibility to
international market economies, and increased globalization has expanded the universe of securities
available for investments and more importantly portfolio diversification. The developments
mentioned above questions traditionally accepted principles by investors who believed that
investing solely in U.S. securities would result in a better risk–return tradeoff. Prudent investors
have known that diversifying across industries and markets will lead to a given level of expected
return at a significantly lower level of risk, and vice versa. However, the advantages of such
diversification are limited due to the same cyclical economic fluctuations that all assets (or
companies) in a particular country are exposed to. The availability of a universe of assets
internationally, and accessibility to these assets and the markets where they trade has opened a
plethora of opportunities to investors across borders who seek diversification accompanied by return
maximization and corresponding risk reduction through international portfolio investments.
Moreover, the limiting effects of economic cycles on assets in a particular country can now be
hedged through international portfolio formation and investing that incorporates the advantage of
cross country diversification in nations whose economic cycles

Efficient Diversification Essay
Discuss:
"The concept of efficient diversification implies that for an investor wishing to efficiently assume
risk in their portfolio; the risky part of the portfolio should consist of weighted proportions of all
possible risky assets."
Abstract: Minimizing investor's portfolio risk was a dominant goal influencing decision making of
investment. The effective method of reducing risks was to efficient diversifying the portfolio. The
author's purpose in this article was to share thoughts and concerns about the statement and analyze
whether investors actually followed the concept of efficient diversification in their investment.
Efficient diversification was a term familiar with most investors. The concept of the term suggested
that ... Show more content on Helpwriting.net ...
Investors, especially small investors could not afford that kind of investment. Institutional investors
might have these capitals to invest, but they were not capable to spread their wealth on all possible
shares. That was why many economists such as Evans and Archer (1968), Stevenson and Jennings
(1984), Gup (1983), Reilly (1985), advised investors that they should relocate their portfolio
containing 10 or so stocks rather than all possible stocks to reduce the risks effectively. In this
regard, since no one could actually invest all possible assets, the concept of efficient diversification
was meaningless.
The second shortcoming of the efficient diversification statement was that some assets cannot be
purchased or invested. For instance, there was a stock option in the share market. Stock option was a
privilege that gave investors the right, but not the obligation, to buy or sell a stock at an agreed price
within a certain period or on a specific date. (Cantrell, 2007) Investors cannot trade on this stock at
the certain price without the stock option, although they knew that adding the stock in their portfolio
would definitely increase their expected return and reduce the variance of the portfolio. Besides,
shares such as company shares different from shares in the stock market were limited to circulate in
the market. These kinds of shares were traded on with

Consider Capital Asset Pricing Model
Name: Li XU Morning group: PGA15 Project group: Management 02 Date: 30/08/2016
Consider the capital asset pricing model. What are the theoretical underpinnings of this model?
What can you say about the empirical implications of this model?
The CAPM (capital asset pricing model) is a model used to evaluate a theoretically appropriate
required rate of return of an asset in finance field, providing information to investor to make
decisions about investment portfolios and guide investors' investment behaviours (McLaney, 2006).
The CAPM was invented by William F. Sharpe, John Lintner and Jan Mossin, basing on the earlier
work of Harry Markowitz on diversification and modern portfolio theory, and now it is universally
applied (Vernimmen, et ... Show more content on Helpwriting.net ...
At the beginning of the discussion, definition of CAPM will be introduced. The CAPM is an
essential model in financial management, it makes contributions to establishing the foundation of
modern financial theory and research. This model based on two important lines.
The capital market line (CML) represents the risk–return combinations for investors to choose the
best investment portfolio with the risk–free asset in an efficient market. It defines the risk/return
trade–off for efficient portfolios. The risk of this equation is all systematic risk (Pike et al, 2012).
The security market line (SML) consists of the return of a risk–free asset and a premium risk which
related to the market's own risk premium. This equation shows the expected rate of return of an
individual security and the risk is measured by beta (Pike et al, 2012).
The beta is a measure of risk arising which indicates whether the investment is more or less unstable
than the market. The greater the beta that shows a particular security, the higher the expected returns
of the security (McLaney, 2006).
All the theoretical underpinnings rely on the assumptions. The CAPM is always regarded as an
unrealistic model because the assumptions which the theory bases on are difficult to satisfy, so it is
necessary to understand these assumptions and explain why they are always criticised by
economists.
Now, these factors mentioned above will be explained more specifically. There are six

Portfolio Theory Essay example
"The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the
relationship between risk and return where more than one investment is held. It also enables us to
identify optimal and efficient portfolios." With Reference to this statement, describe, discuss and
illustrate the principles of portfolio theory. Your essay should include coverage of the Markowitz
Efficient Frontier and the Capital Market Line. Declaration: I confirm that this submission is my
own work. Vinita Java Introduction: An investor would invest in a security for the return. However
that return comes with a premium, the Risk. The higher the risk an investor is willing to take the
higher the returns would ... Show more content on Helpwriting.net ...
He suggested that investors should choose portfolios and not individual shares.
(http://www.riskglossary.com/link/portfolio_theory.htm). Portfolio Theory: Markowitz contribution
showed that the benefits of diversification depend not just on risking individual assets but also on
how the asset returns interact with each other, or the correlation between returns. E.g. A combination
of investments in Umbrellas and Ice Creams will eliminate the risk of one another, i.e., the low
returns from ice creams in rainy season will be compensated by the umbrella sales. High returns in
one industry, in this case, always offset low returns in the other to give a positive return with
certainty because returns on the two assets are inversely correlated. Risk of a portfolio (combination
of shares) depends on the correlation between the expected return of every pair of shares in a
portfolio. Correlation varies between +1 and –1. Thus a perfectly positively correlated portfolio
would mean a +1 and a negatively correlated portfolio would mean –1. In a positively correlated
portfolio the expected return would move in the same direction in the same proportion at all times,
however in a negatively correlated portfolio the returns would move in the opposite direction (J
Ogilvie & B Koch 2002). A change in any of the variables (proportions of the

A Random Walk Down Wallstreet Essay
"A Random Walk Down Wall Street"
There is a sense of complexity today that has led many to believe the individual investor has little
chance of competing with professional brokers and investment firms. However, Malkiel states this is
a major misconception as he explains in his book "A Random Walk Down Wall Street". What does a
random walk mean? The random walk means in terms of the stock market that, "short term changes
in stock prices cannot be predicted". So how does a rational investor determine which stocks to
purchase to maximize returns? Chapter 1 begins by defining and determining the difference in
investing and speculating. Investing defined by Malkiel is the method of "purchasing assets to gain
profit in the form of reasonably ... Show more content on Helpwriting.net ...
I believe prices can remain high as long as demand supports it, but demand is not constant and will
rise and fall until equilibrium is reached.
A more modern version of the bubble is known as Black Thursday. During little more than a year
period from 1928 to 1929 the market experienced unprecedented growth, more than that of the prior
five years combined. There was a speculative market and everyone was getting in. Stocks were
being bought on margin, thus exemplifying the crazes. Furthermore, the investment pool strategy
became popular around this time. This involved a group of traders banding together to manipulate a
stock. The process entailed a pool manager who would buy large portions of stock over a period of
time. The pool manager would recruit a stock's specialist on the exchange floor. The specialist had
excess to all the buy and sell prices above and below the current market price. Then the pool
members would trade among themselves at slightly higher prices, therefore manipulating the stock
price. It gave the appearance that the stocks had a lot of activity and rising prices. Also, the media
would play a part as pool managers would tell of ground breaking news and exciting new
developments Once the public saw the activity they jumped in thinking this was a hot stock. Then
the public did all the buying and the pool did the selling. Thus the pool was rewarded significant
profits. This manipulation of stock prices is

Economics Of Corporate Finance Theory
Economics of Corporate Finance
Capital Asset Pricing Model is the foundation stone of modern finance theory. It reveals the basic
operation rules of the capital market and it is important in market practice and theory research(). By
use of this model, the relation between risk and expected return is accurately predicted, and provides
a method to estimate the yield of potential investment projects and help us to predict the expected
rate of return of market in future. Although the Capital Asset Pricing Model is not entirely consistent
with the empirical test, however, because of the simplicity of the model, it is still widely used. A
model may have highly realistic assumptions, but if it has no predictive power, it is largely
worthless. Most researchers have attempted to test the CAPM to see if it works, looking at the
relationship between observed beta values and average returns(). One phenomenon is that the actual
slope of the Security Market Line is slightly less than the predicted slope of the CAPM. This essay
is going to discuss potential explanations of this phenomenon.
Most researchers test the CAPM by the basis of 'risk premiums', and the model is: E[R_i ]= r_f+β_i
(E[R_Mkt ]– r_f), then it minus the risk–free return from both side and add an intercept term–α into
this model, the intercept term should be zero, we can see new equation: E[R_i ]– r_f= α+β_i
(E[R_Mkt ]– r_f). In this model, the beta is used to measure the systematic risk between investment
and stock

The Performance Of Portfolio Theory
Introduction
This report is established to illustrate the performance of portfolio by using modern portfolio theory
to make one portfolio allocation decisions per year (round) over nine years (rounds) in an
investment game and find out a reasonable strategy to meet a particular investment objective.
Specifically, it tries to figure out following questions:
1. How the investment decisions can be made？
2. The research that is undertook
3. The critical factors that influenced the decision
4. How are the results different from our expectations？
The first question is more important since it plays a vital role in the investment process.
Some research papers have concluded several key points via using modern portfolio theory and we
used them in ... Show more content on Helpwriting.net ...
That is to say, the manager can only get risk–free asset if he is willing to be in a relatively low risk
level and he must give up monitoring how the return goes on as they only emphasis on risk and vice
versa.
The second conclusion refers that some risky portfolios, to some extent, indicate a poor performance
on a yearly basis. More specifically, there are still exist a phenomenon that it is inevitable that the
return on a common stock will be negative although it performed better than bond in the long term
according to the historical data. He also mention in the paper that the influence of asset on the
portfolio could play an essential role in the making decisions on whether buying an asset or
continuing to hold an asset. This result is embodied in the investment simulation system which is
expressed by the yearly news.
In the third conclusion, Gruber argues that the characteristics of the investor determines the
composition of the investor's portfolio which also means that the investor must construct an
appropriate portfolio in order to meet the client's investment objectives. In addition, he also
demonstrates that investment performance is supposed to be judged over a long period of time like
more than one year so that the result to be received is going to be more accuracy and convinced. In
other words, the long term performance data will give a brand new viewpoint in the case of
constructing

Berkshire Hathaway Phenomenon In the Context of Modern...
Berkshire Hathaway
Phenomenon
In the Context of Modern
Finance Theory
Septtember
2013
Berkshire Hathaway Phenomenon
In the Context of Modern Finance Theory
Introduction
Over the 46 years ending December 2012, Warren Buffett (Berkshire Hathaway) has achieved a
compound, after–tax, rate of return in excess of 20% p.a. Such consistent, long term, out
performance might be viewed as incompatible with modern finance theory.
This essay discusses the Berkshire Hathaway phenomenon in the context of modern finance theory.
Part 1 Modern Portfolio Theory
Berkshire Hathaway's investing strategies mainly differ with modern portfolio theory on two
aspects. The first one is the attitude towards the undesirable thing in ... Show more content on
Helpwriting.net ...
Having compared the differences, it is still worth noting that Markowitz did not rule out
fundamental analysis in portfolio selection process, as is said in his foregoing paper,(Markowitz,
1952)"the process of selecting a portfolio may be divided into two stages.
The first stage starts with observation and experience and ends with beliefs about the future
performances of available securities. The second stage starts with relevant beliefs about future
performances and ends with the choice of portfolio. This paper is concerned with the second stage".
Part 2 Efficient Market Hypothesis
The strong form of efficient market hypothesis states that all information, no matter public or
private, instantaneously affects current stock price. Semi–strong form is only concerned with public
information, while the weak form suggests that current stock price reflects information in the
previous prices. In short, they simply imply that in the long run, no one should be able to beat the
market in terms of investment return.

As is said in Fama's paper in 1970, (Eugene F, 1970)"the evidence in support of the efficient
markets model is extensive, and (somewhat uniquely in economics) contradictory evidence is
sparse". However, Warren Buffet has always criticised efficient market hypothesis as much as he
could. The major

Case Study : John & Marsha on Portfolio Selection
บทสรุปผู้บริหาร
จากกรณีศึกษา John ต้องทำการตัดสินใจว่า ในพอร์ตการลงทุนที่เขาบริหารจัดการอยู่นั้น ควรซื้อหุ้น
PioneerGypsumหรือGlobal Miningในสัดส่วนเท่าไหร่ จึงจะสามารถได้ผลตอบแทนที่สูงบนพื้นฐาน
ความเสี่ยงที่เหมาะสม ซึ่งแต่เดิม John ไม่ได้ทำการกระจายการลงทุน (Diversified) โดยทำการ
วิเคราะห์จากการคำนวณหา Expected Return, Risk Premium และคำนวณ Standard Deviationเพื่อนำ
ไปคำนวณหา Sharpe Ratio ที่มีอัตราส่วนที่สูงที่สุด ซึ่งอธิบายถึงผลตอบแทนที่ถูกปรับด้วยความเสี่ยง
ที่ดีที่สุด
เมื่อได้ทำการวิเคราะห์และคำนวณ Sharpe Ratio แล้ว พบว่า หุ้นที่เหมาะสมที่จะทำการลงทุนเพิ่ม
ได้แก่ Pioneer Gypsum โดยลงทุนในสัดส่วน 4% จึงทำให้การลงทุนในตลาดเป็น 96% เนื่องจากเป็น
สัดส่วนที่ทำให้Sharpe Ratio มีค่าสูงที่สุด คือ 0.4702 ... Show more content on Helpwriting.net ...
lobal Mining แทนที่ Pioneer ตามที่ Marsha แนะนำ John จะต้องลงทุนอย่างไร เพื่อให้ได้ผลตอบแทน
ที่ปรับกับความเสี่ยงสูงที่สุด หรือ Sharpe ratio สูงที่สุดนั่นเอง โดย Global accounts for .75% index
และ market standard deviation เท่ากับ 16% และ Return ของตลาดเท่ากับ 12.5 โดยมี Risk–free Rate
เท่ากับ 0.05
Solutions
ในการตัดสินใจเลือกหุ้นตัวใดเข้าพอร์ตการลงทุนนั้น เราต้องพิจารณาอัตราส่วนทางการเงินที่สำคัญๆ
เช่น ดัชนีวัดผลการดำเนินงาน การวัดผลตอบแทนจากการลงทุน และค่าความเสี่ยง เป็นต้น ซึ่งตัววัด
เหล่านี้ชี้ให้เห็นถึงตัวเลขที่เป็นประโยชน์ต่อการตัดสินใจเลือกลงทุนในหุ้นรวมถึงสามารถพิจารณา
สัดส่วนการลงทุนที่เหมาะสมให้เกิดผลตอบแทนสูงสุด
ในการคำนวณเพื่อหาสัดส่วนที่เหมาะสมที่สุดและทำให้เกิดผลตอบแทนมากที่สุดในการจัดพอร์ตการ
ลงทุน เราสามารถดูจากการคำนวณ Sharpe Ratio ซึ่งเป็นอัตราส่วนที่ใช้วัดผลตอบแทนที่ปรับด้วยค่า
ความเสี่ยงเปรียบเทียบกับผลตอบแทนจากการลงทุนที่ปราศจากความเสี่ยง หรืออาจอธิบายโดยง่ายก็
คือพอร์ตการลงทุนที่ดี จะมี Sharpe Ratio สูง โดยสามารถศึกษาจากกรณีตัวอย่างดังต่อไปนี้
กรณีที่ 1 ลงทุนในตลาดและหุ้น Pioneer Gypsum
จากกราฟข้างต้น เป็นกราฟที่แสดงเปรียบเทียบระหว่างค่า Expected Return ของพอร์ตการลงทุนแต่ละ
แบบ ที่ลงทุนในหุ้นของ Pioneer ที่ระดับ Standard Deviation ต่างๆ กัน โดยจากกราฟจะแสดงพอร์ตที่
แตกต่างกัน 7 แบบ โดยเส้นตรงที่แสดงคือ เส้นที่เกิดจากการนำข้อมูลจาก Sharpe Ratio และนำมา
ประยุกต์ใช้กับทฤษฎี Capital Asset Pricing Model (CAPM) ที่ใช้ในการคำนวณหาผลตอบแทนที่คาด
หวังของพอร์ตการลงทุน ซึ่งจะเห็นว่าจุดที่มี Return สูงกว่า Expected Return ตาม CAPM ก็คือจุดที่ 3,
4 และ 5

The Relationship Between Risk And Expected Returns
The Relationship Between Risk and Expected Returns
According to investment glossaries, a risk is a future probability of loss inherent in any investment
(Investopedia Financial Dictionary, 2016). To this day, the positive correlation between risk and
return continues to be the cornerstone of financial theory. The basic capital asset pricing model
(CAPM) formula is built on this relationship. CAPM provides the required return based on the level
of systematic risk of an investment. The risk associated with an investment is taken to lie along a
scale. On the low–risk end of the scale, there are low yielding government bonds and securities. At
the middle of the spectrum are medium performing investments – such as high yielding loan notes,
and rental property. At the far end of the scale – high–risk – are futures, options, and equity
investments. However, the positive relationship between risk and return does not guarantee that
taking a greater risk will result in higher returns. Rather, a higher risk may lead to the loss of a
greater amount of capital. This paper seeks to examine the risk and return relationship and how
investors can determine the optimal trade–off.
The risk–return principle. It is a principle that the potential returns on investment rise with the
increase in risk. According to this principle, low levels of uncertainty – like in the case of
government bonds – have low potential returns. For instance, a US five–year Treasury bond yields a
return of 1.125

Concept Of Capital Asset Pricing Model
1. Introduction
Capital asset pricing model know as CAPM is a model for calculates the required rate of return for
any risky asset. This method is often used to determine the fair price of an investment should be.
This essay will discuss about usage of CAPM in securities industry, through probe the advantages
and limitation of CAPM to this industry.
2. Concept of Capital asset pricing model
During 1952, Markowitz came out with a theory based on diversified investment is able to construct
the risk–averse investors. He diversified investment portfolio theory and efficiency of the priory
rigorous mathematical tools as a means to demonstrate risk–averse investors in a number of risky
assets in construct the optimal portfolio methods (Markowitz, 1952).
But due to the existence of some problem, from the early 1960s began, some economists began to
representatives from the empirical perspective, and explore investment securities reality that
Markowitz's theory in reality can be simplified? By building on the theory of Harry Markowitz on
diversification and modern portfolio theory, William F.Sharpe (Sharpe, 1964), John Lintner (Lintner,
1965) and Jan Mossin (Mossin, 1966) had come out with the new theory which is knows as Capital
asset pricing model.
As expected based on the risk assets of the prediction model based on equilibrium income, CAPM
describes the formation of market equilibrium at investors using Markowitz's theory of investment
management conditions, the expected

Benefits Of The Financial Services Industry Outweigh The...
Investment has become a growing tendency and a method for people dealing with their income,
while portfolio is an important investment vehicle. In the same time, financial services industry has
played a critical part in making investment portfolio available to ordinary people. In this essay, the
meaning and functions of portfolio will be analyzed and it will argue the advantages of the financial
services industry outweigh the disadvantages.
Firstly, portfolio theory has become an essential strategy in the modern investment market. In
general, according to Elton (2011), it is a common situation that each person may possess a portfolio
which is combined with real assets such as a vehicle or a house, including financial assets such as
stocks and bonds. An investment portfolio is a series of chosen securities for investing purpose. In
order to avoid risks or pursue for profits, investors are faced with enormous number of choices. If
one is considering structuring an investment portfolio, the alternative composition of various assets
seems overwhelming. So how to make a decision and what is a good , even best portfolio are the
points in the first part.
As Clark and Kim (2013) said, portfolios are the objects of choice. A great amount of information is
needed for investors to make a decision because it is smarter to divide the money in different assets
instead of concentrating on a specific financial product. Portfolio analysis was created by the Nobel
laureate Harry Markowitz

Capm Model Of Predicting Returns For Stocks By Empirically...
Introduction This paper aims to analyze the validity of the CAPM model of predicting returns for
stocks by empirically testing the model with past financial data. The CAPM model is defined as
R_i=r_f+ β_i (R_m–r_f). R_i represents the return on stock i, and is what the CAPM model
attempts to define or predict. r_f represents the risk free rate available at the time the model is being
analyzed, a figure that's important for understanding both minimum return figures and the return
premium offered by the market. β_i represents the Beta of stock i and is a measure of a given
company's volatility relative to the market they are in. If β_i is one, then the company is at market
risk, if it is lower than one then it is below market risk, and if it is higher than one then it is above
market risk. The only stock that would have a Beta of 0 would be a risk free stock, or whatever
security you are using for your risk free rate. β_i is calculated as (COVARIANCE(r_i–r_f,〖 r〗
_m–r_f))/(VARIANCE(〖 r〗_m–r_f)).(R_m–r_f) represents the Market Risk Premium, or the level
of return an average stock in the market would return in excess of the risk free rate. Essentially
CAPM attempts to study the amount of return generated by a company's systematic, or market
specific, risk, which is a type of risk that is undiversifiable. This means that CAPM tests for the
amount of risk that a security has as compared to the market, which is a baseline level of risk that
any firm that is publicly traded is

Mean Variance Analysis
Harry W. Markowitz, the father of "Modern Portfolio theory", developed the mean–variance
analysis, which focuses on creating portfolios of assets that minimizes the variance of returns i.e.
risk, given a level of desired return, or maximizes the returns given a level of risk tolerance. This
theory aids the process of portfolio construction by providing a quantitative take on it. It integrates
the field of quantitative analysis with portfolio management. Mean variance analysis has found wide
applications both inside and outside financial economics. However it is based on certain
assumptions which do not hold good in practice. Hence there have been certain revisions to it, so as
to make it a more useful tool in portfolio management.
Mean ... Show more content on Helpwriting.net ...
All securities can be divided into parcels of any size.
Let R be the expected return of the assets:
R = (R1, R2,.....Rn)T
Let V be the variance/covariance matrix. It is assumed to be positive definite. σ ij = cov (Ri , Rj)
A portfolio X of asset weights is expressed as:
X = (x1, x2,..........xn)T.
[Note that HT denotes the transpose of a matrix H and xi denotes the weight on asset and ∑xi = 1,
where i=1 to n]
The expected return of a portfolio is given by E[RX] = XT E[R], and the variance of the portfolio by
σX = XT VX. Thus, the mean–return of the portfolio X satisfies: Mean = Rx= XT ¯R = ∑xi ¯RI,
where i = 1 to n.
The variance Vx of portfolio return is given by: where σi2 is the variance of return i , and σij
measures the covariance between returns i and j . We denote the standard deviation of X by σX.
Often, it is not possible to be short on assets. In that case, we need to add a constraint that all
portfolio weights shall be zero or above: xi ≥ 0.(Mz)
If we search for maximizing the expected return for a given variance, we have to solve the following
optimization problem:
As explained by Markowitz, the portfolio selection problem can be formulated as a quadratic
program. We can also search for minimizing the variance given a level of expected return. For a
portfolio containing n assets, the minimum variance portfolio is a solution of: Where E* is the level
of expected return.
Thus we get the efficient frontier as shown

Diversification Of An Investment Is Essential And Highly...
Diversification Diversification of an investment is essential and highly beneficial for a number of
reasons. It is used to reduce risk and increase returns by diversifying investments into a number of
different areas. Through diversification the effects of business risk or unsystematic risk are
dispersed causing investment fluctuations to counterbalance one another reducing risk
(Investopedia, 2003). Since the future is unpredictable, investors have no way of knowing with
certainty which investments classes will perform the best. By diversifying assets that are
uncorrelated with one another an investor can reduce risk and create an investment mix that will
provide an increased advantage for high returns. Time Horizon How a portfolio is diversified
depends on an investor's risk aversion, investment goals and life cycle or time horizon. Accordingly,
if an individual is in the accumulation life cycle phase they have a longer time horizon and can
diversify their assets in riskier securities which will provide a greater return, increasing the investors
wealth over the years. However, when an individual is in the preservation state, they have a short
time horizon and cannot afford to be invested in riskier securities. Therefore, investors in the
preservation phase choose investments with high liquidity that have low risk and return (Hirt, et al.,
2006). As with any investment, it is important to adhere the portfolio to the clients risk aversion
preferences and investment

Investment Style Focused on Risk Diversification
Diversification, Schmiversification Steve Smith, 23, recently out of college, has just won $15
million in the lottery. After buying a few things, he realizes that he still has quite a bit of money, and
starts to look at the big picture and what he should do. After his girlfriend shoots down his dreams
of buying an island paradise where he could relax and golf all day, or buying his own rocket ship,
Steve is forced to think of more practical things to do with his newly acquired fortune. Unable to
find a way to spend it all, Steve decides to save and invest most of his winnings. He begins
searching financial magazines and the internet for the best way to build his capital. Steve faces an
issue that many investors today face—not a ... Show more content on Helpwriting.net ...
His lack of diversification is a strong contrast to that of the traditional method; however, this lack of
diversification has helped his personal portfolio to outperform market indexes, used as benchmarks
for returns on stock market investments, such as the Dow Jones Industrial, the Nasdaq, and the
Standard and Poor 's 500 (S & P 500) every year for the past 40 years. In his article "Warren Buffett:
The World 's Greatest Investor," financial journalist Maynard Patton presents some quotes from
Warren Buffett on his investment style. Buffett is attributed with saying "conventional
diversification makes no sense for [a know–something investor]. It is apt simply to hurt your results
and increase your risk." Buffett 's rationale is that investors should not buy shares of a stock unless
they feel the company they are buying into will be around for a while. To make an assumption that a
particular company will still be a functioning body in the future would require some knowledge of
the company 's financial situation and the industry in which it operates. Essentially, Buffett believes
that people should only invest in companies with which they are familiar. Along these lines, one of
his strongholds is that many people purchase stocks of companies in industries with which they are
not familiar for the sake of diversification. Making a

Challenges Faced By Senior Management
INTRODUCTION
The business environment of today is complex; thereby faster decisions have to be made and better
allocation of resource is essential with a clearer focus of the future. This poses a major problem to
senior management because organizations consist of a changing mix of large and small projects
which brings new challenges in prioritization of projects, resource planning and monitoring (Elonen
and Artto, 2003). According to Engwall and Jerbant (2003) cited in Kaizer et al., 2015, the number
of available project alternatives far outnumber the projects an organization can handle at a given
time with its limited resources, and making the right choice from all these alternatives is rarely easy.
Mankins and Steele (2005) cited in Meskendahl (2010) posits that only 63% of strategies' potential
values are realized by firms and Johnson (2004) cited in Meskendahl (2010) reveals that about 66%
of corporate strategy is never realised. Nonetheless, Hrebiniak (2006) cited in Meskendahl (2010)
states that making strategy work is more difficult than making strategy itself. In other words, it is
difficult for firms to put strategy into action. This is where Project portfolio management (PPM)
comes in. Building on this, the aim of this essay is to evaluate PPM elements in an organization,
discuss the tools and criteria used to support the decision making and evaluation of project success,
and consider the significance of PPM for other organizations that may want to consider it.

Theories Of Harry Markowitz Portfolio Allocation Theory
HAW Hamburg Faculty of Business and Social Science Department of Business Term paper
Markowitz portfolio allocation theory First name, family name Date and place of birth Matriculation
number Maria Titova 10.08.1992, Moscow 2227909 Telephone, e–mail Date of submission: +49
152 0218 1097 5rd December 2014 maria.titova@haw–hamburg.de Lecturer: Prof. Dr. Decker
Course: Corporate Finance Name of degree program: International Business (M.Sc.) – II – I
Abstract The idea of diversification is rather old. The axiom "don't put all your eggs in one basket"
definitely precedes economic theory. However, the theory, pointed to the power of diversification
was first developed by Markowitz in 1952 and now is known as Markowitz portfolio allocation
theory. ... Show more content on Helpwriting.net ...
Error! Bookmark not defined. V List of abbreviations CAPM Capital Asset Pricing Model – 1 – 1
Introduction 1.1 Research problem Harry Markowitz is one of the founders of the theory of finance,
the fastest growing economic sciences. This lays the foundation for the applied financial
management in a company, using the tools and methods of investigation with a help of which any
company can analyze its financial position, to assess the value of its capital and its structure, to
select the best investment project and to manage it or to decide how and how many shares or bonds
to issue. Markowitz's approach to the problem of portfolio selection suggests that the investor tries
to solve two problems: to maximize the expected return at a given level of risk or minimize
uncertainty (risk) at a given level of expected return. Therefore, the aim of this course work –
review the Markowitz portfolio allocation theory as a way of creating the optimal and efficient
investment portfolio and highlight its importance in modern world. This paper tries to answer two
fundamental questions: first, what is the main idea behind Markowitz allocation theory, and the
second, how valid is Markowitz theory

Modern Portfolio Theory Adaptations ( Pmpt )
Modern Portfolio Theory Adaptations
MPT correlates the distribution of assets to the risk of investments. This theory also acknowledges
an investors aversion to risk and required return rates (Geambasu, Sova, Jianu, & Geambasu, 2013).
Moreover, MPT emphasizes the importance of diversifying as much as possible to eliminate risk. In
order to measure the risk of an investment MPT relies on the standard deviation of all returns
(Chambers, 2010). However, due to new analysis suggesting that MPT produces inefficient
portfolios, financial experts have adapted the theory, creating the Post Modern Portfolio Theory
(PMPT). The PMPT improves upon MPT by refining the risk calculations and using the standard
deviation solely on negative returns. As such, PMPT acknowledging an investor's expectation and
recognizes that the standard deviation measurement in MPT poorly measures how humans
experience and asses risk (Swisher & Kasten, 2005). Therefore, the standard deviation is an
important analysis used in divarication financial theory's to asses and ultimately avoid risk.
Standard deviation. The standard deviation is one of the most common calculations to measure an
investments risk because it produces the actual amount an investment's return will deviate from its
average (Chambers, 2010). When combined with either the MPT or PMPT the standard deviations
assists in finding the optimum portfolio that yields the least amount of risk in combination with the
best expected returns

Markowitz Portfolio Optimization
Report Introduction Markowitz (1952, 1956) pioneered the development of a quantitative method
that takes the diversification benefits of portfolio allocation into account. Modern portfolio theory is
the result of his work on portfolio optimization. Ideally, in a mean–variance optimization model, the
complete investment opportunity set, i.e. all assets, should be considered simultaneously. However,
in practice, most investors distinguish between different asset classes within their portfolio–
allocation frameworks. In our analysis, we view the process of asset allocation as a four–step
exercise like Bodie, Kane and Marcus (2005). It consists of choosing the asset classes under
consideration, moving forward to establishing capital market ... Show more content on
Helpwriting.net ...
Would you please explain (using the set of results for 3.5% risk free rate)? This entails an analysis
of the economic conditions for different periods. The most important insight we get is that in a
diversified portfolio, the contribution to portfolio risk of a particular security will depend on the
covariance of that security's return with those of other securities. If you see the correlation matrix
for the 2 sub periods, we can see that the economic–wide risk factors have imparted positive
correlations among the stock returns for Sub Period 2 (03 – 10). This was the time of economic
crisis (08–10) and since most of the risk was economic, the optimal portfolio incorporates less risky
assets. While the sub period 1 (95 – 03) went through a healthy growth period, had mostly firm
specific risk and lesser economic risk. c) The CIO wants to propose investment limits on certain
asset classes to the IPC for consideration, but the CIO may not be aware of the likely impact on the
performance of the Fund. Since you have run some analysis above based on the proposed limits,
present your analysis and make a recommendation regarding investment limits for the historical
arithmetic average (target) return and the 6% p.a. target return. The fundamental concept behind
MPT is that the assets in an investment portfolio should not be selected individually, each on their
own merits. Rather, it is important to consider how each asset changes

Stock and Company
Week 7 Chapter 6: Investors in the Share Market True/False QUESTIONS 1. Investing in shares of
publicly listed corporations should, on average, over time provide a higher return than investing in
fixed–interest securities. a. True b. False 2. Investments through a stock exchange are limited to
ordinary shares issued by listed corporations. a. True b. False 3. Portfolio theory contends that a
diversified share portfolio enables an investor to significantly reduce the portfolio's exposure to
systematic risk. a. True b. False 4. A share that has a beta of one is twice as risky as an average share
listed on a stock market. a. True b. False 5. Shares that typically demonstrate a negative price
correlation will usually move in the same direction ... Show more content on Helpwriting.net ...
Government: Commonwealth, state and government trading enterprises D. Overseas–the rest of the
world 6. The risk that impacts specifically on the share price of a particular company is called: A.
economic risk B. business risk C. systematic risk D. unsystematic risk 7. When investors buy and
sell shares based on receiving new information on shares and markets, this is known as: A. active
investment B. a diversified strategy C. a market replication strategy D. passive investment 8. To
track the S&P500, a fund manager can buy: A. all the stocks in the S&P500 B. an S&P500 index
fund C. a percentage of stocks that essentially tracks the index D. All of the given answers. 9. The
correlation of pairs of securities within a portfolio is called: A. co–association B. correspondence C.
covariance D. variance 10. The correlation between two shares: A. can take on positive values MAF
702 Lecture 7 (Topic 7) MCQs and T/F Questions Page 3 B. can take on negative values C. is
related to the covariance of a share D. All of the given answers. 11. Portfolio risk is heavily based
on: A. a simple average of the variance of the stocks in the portfolio B. a weighted average of the
variance of the stocks in the portfolio C. a weighted average of the covariance of the stocks in the
portfolio D. the standard deviation of the stocks 12. When an investor alters the mix of their
portfolio to reflect market changes, this is called _____ asset allocation A. market timing B. passive

Theory Of Harry Markowitz And The Portfolio Selection Process
Harry Markowitz is highly esteemed as a pioneer in theoretical justification of investor's behavior
and development of optimization model for portfolio selection process. In 1990, Markowitz
received a Nobel Prize for his contributions to financial economics and corporate finance, the first
time presented in his "Portfolio Selection" (1952) and more extensively in his monography
"Portfolio Selection: Efficient Diversification" (1959). His seminal works form the foundation of the
Modern Portfolio Theory (MPT). Markowitz' ideas ware later substantially expanded by his Nobel
Prize co–winner, William Sharpe, who is generally recognized for his Capital Asset Pricing Model
(CAPM) concerning with financial asset price formation.
In the paper "Portfolio selection theory" Markowitz characterizes the Mean–Variance model as both
normative theory, which offers a standard or norm of behavior that investors should pursue in
constructing a portfolio, and positive hypothesis, ... Show more content on Helpwriting.net ...
In general, risk measure should assess the probability, essence, and intensity of a deviation from the
expected value of return. Nevertheless, Markowitz portfolio selection theory states that the risk of
each asset in isolation is not crucial, but the contribution of each asset to the risk of the portfolio is
decisive. In context of a portfolio, the total risk of a security can be divided into two basic
components: systematic risk (also known as market risk or common risk) and unsystematic risk
(also known as diversifiable risk). Although, since the returns on different assets are correlated to at
least some degree, unsystematic risk can never be completely eliminated regardless of how many
types of assets are aggregated in a portfolio, it can be significantly diminished by the diversification
of securities within a

Managing Investment Growth Of A Diversified Portfolio
Managing Investment Growth In order to maximize a portfolio's return, it is important to analyze
risk and diversify securities, while adhering to the goals of an investor. Through analyzing the
different classes of risk, one can match investments to an investor's risk tolerance and return
requirements. Even though some investments may present greater risk they are countered by a
higher rate of return and vice versa, less risk corresponds to a lower return. Moreover, investment
risk can be substantially reduced through diversification, which spreads a portfolio across different
industries, businesses and investment options. The makeup of a diversified portfolio continually
changes based on an investor's time horizon and investment goals. In accordance with the Modern
Portfolio Theory (MPT), one can maximize return while reducing risk, through assessing
investments standard deviation and beta. When applied to the capital asset pricing model (CAPM)
an investor can determine what the expected rate of return should be and if the risk is worth it.
Therefore, by analyzing risk and diversifying investments one can maximize an investment growth,
increasing a portfolios return.
Investment Risk Investment risk assesses the overall level of uncertainty or volatility associated
with an investments potential returns. As a result, investment risk helps determine the likelihood of
receiving an increased or decreased amount of the expected return on an investment. While risk is

International Financial Real Estate Investments
Introduction
International institutional real estate investments are driven by the potential to increase the
risk/return ratio of a portfolio through investing in countries with different political and economic
environments. This allows investors to add assets to their portfolio with low or negative correlation
with other assets classes and provides increased gains associated with Modern Portfolio Theory
(MPT). Although the majority of recent literature has focused on the benefits of portfolio
diversification from investing in real estate equities, this paper focuses solely on direct real estate.
It begins by looking at the literature regarding international real estate in a multi–asset portfolio and
how different markets offer ... Show more content on Helpwriting.net ...
A study conducted by Chua (1999) considers the benefits of including international real estate in an
already internationally diversified mixed asset portfolio. After correcting for appraisal smoothing
and adjusting for the higher transaction costs of direct property compared with other asset classes,
Chua pursued a conventional mean–variance analysis to construct optimum portfolios from the
perspective of a US investor. This analysis covered the period 1978 to 1997, and it concluded that
real estate does have a viable role to play in global mixed asset investment portfolios. The optimal
allocations to real estate varied from 4% to 21% – depending on the risk tolerance of the investor.
A similar study conducted by Hoesli et al. (2004) from 1987 – 2001 aimed to provide an
international comparison of the benefits real estate assets have on a multi–asset portfolio. Annual
data is used relating to indirect real estate, direct real estate, stocks and bonds from the US, UK,
Australia, Switzerland, Sweden, Netherlands and France. Individual indices to measure direct real
estate performance are extracted from each country and combined to form a weighted 'world' index
across all major commercial sectors.
It is found that real estate is an effective diversifier in multi–asset portfolios (particularly with the
inclusion of domestic and international allocations), with the optimal allocation varying from 15% –
25%, again

The Concept Of The Modern Portfolio Theory
In 1952 the basic concept of the modern portfolio theory was written by Harry Markowitz, in which
he explained that assets in an investment portfolio are not only to be selected on the basis of its
merit but also by how it's price changes relative to every other asset in the portfolio. Investment can
be stated as a trade–off between expected return and risk, the riskier the investment the higher the
return and vice versa. It allows us to make a decision to choose between the portfolio with either the
highest rate of return or the lowest amount of risk. The risk of different stocks can be reduced if a
portfolio consists of stocks with different risks and returns for example; if stock A has high risk and
stock B has low risk, the overall portfolio risk is less, as it is the weighted average of both risks.
Owning different shares with different risks in a portfolio is known as diversification. Markowitz
hence developed the efficient frontier of portfolio, the efficient set in which investors choose the
most suitable portfolio for them. This concept gave birth to the Capital asset pricing model by
William Sharpe in 1964 and linter 1965; they state that there are two types of risk, systematic risk
and unsystematic risk. The former is the market risk that cannot be diversified while the latter is the
risk associated with individual stocks which can be reduced through diversification as stated by the
MPT (Investopedia, 2003) Investors basically invest by delaying consumption now

Harry Markowitz Theory Of Finance Theory
Markowitz was hardly the first to consider the desirability of diversification.
Harry Max Markowitz – this is one of the founders of the theory of finance, the fastest growing
economic sciences. This lays the foundation for the applied financial management in a company,
using the tools and methods of investigation with a help of which any company can analyze its
financial position, to assess the value of its capital and its structure, to select the best investment
project and to manage it or to decide how and how many shares or bonds to issue.
Harry Markowitz, as a graduate student in University of Chicago, associated in the Cowles
Commission for Research in Economics. It is a research Center with a great influence in Economics
and Econometrics ... Show more content on Helpwriting.net ...
However, Markowitz portfolio allocation theory is highly criticised, because the final portfolios are
not adequately diversified. This model was applied to a South African market, so that it gives
unrealistic portfolios, that are not diversified enough, as portfolio managers noticed (McLeod
(1998).
It was also discovered in a Bowen article, that Markowitz allocation portfolio theory requires a large
data volume and pointed out on the difficulty in covariance estimation. He doubted in the reliability
of the model predictions and deduced, that existed statistical barriers do not let an average portfolio
manager to use only this model in his day–to–day activities. (Bowen 1984:21)
According to the Michaud, the Markowitz portfolio allocation model isn't widely used in practice
despite its theoretical success because of 3 reasons:
Fundamentally demanding nature of model;
Most investment company are acting in a way not to be structured to adopt mean–variance

Market Theory, Capital Asset Pricing Model
Capital market has deep developed this century, more and more investors go into this market. Which
security is better? How to invest? Investors need numeric index to make decision. There are some
theories to help investors: portfolio theory, capital asset pricing model (CAPM), option pricing
model and so on. This essay will explain portfolio theory firstly. Secondly, this essay will explain
CAPM and discuss the importance of the assumptions of CAPM. Thirdly, this essay will explain
arbitrage pricing theory (APT) and factors model. Finally, this essay will compare CAPM with APT
and factors model. Harry Markowitz put forward portfolio theory in 1952; portfolio theory is that
using portfolio diversification to eliminate non–systematic risk; portfolio theory uses mathematical
methods σanalysis the relationship between risk (variance) and expect return (mean) (Brealey,
Myers and Allen,2014). Mean–variance criterion is very important for Portfolio theory. The mean is
the expect return of portfolio, the formula of expect return for one asset is: E (r) = ∑_(all states)▒
〖r×y(states)〗 r is return; y is the probability of return. Formula of expect return for portfolio is:
E(r) =w_1*E (r_1) + w_2*E (r_2) + ... + w_n*E (r_n) w is the weight of an asset in the portfolio.
The variance represents risk of portfolio, and the formula of portfolio's variance is: σ^2=E [〖(r–
¯r)〗^2] = ∑_(i,j=1)^n▒〖w_1 w_2 Cov(r_1,r_2)〗 Cov is the covariance. If there are just two
assets, this

Modern Portfolio Theory Is An Essential Part Of Higher Return
Modern portfolio theory is an investment theory based on that investors can construct portfolio to
maximize return which based on a given level of market risk, emphasizing that risk is an essential
part of higher return. Modern portfolio theory is one of the most significant economic theory dealing
with finance and investment, which was published by Harry Markowitz in his paper "Portfolio
Selection" in 1952 by Journal of Finance (Shipway, 2009).
According to Shipway (2009), the problem of direct real estate investment is the lack of liquidity
which compared with other investment media. The reason is real estate special features, such as the
large size, high transaction costs, infrequency transaction of real estate ... Show more content on
Helpwriting.net ...
Due to the characteristics of real estate market, most of institutions adapt modern portfolio theory as
a standard tool for understanding how the real estate market behave, whether independently or as
part of the overall investment holdings. The modern portfolio theory would help investors to create
a portfolio of investments that produces predictable return. Risk in this system is defined as unstable
return. The application of modern portfolio theory to real estate would allows real estate managers
to understand both what to expect from real estate investments as a whole, and how those real estate
holdings fit into the overall portfolios. However, there are some disagreements of applying modern
portfolio theory to real estate. In 1993, Young and Grieg reported that it has been proved
mathematically that real estate is unsuitable for modern portfolio theory analysis, because real estate
is heterogeneous and the real estate market is illiquid and different to the stock market. Young and
Grieg have indicated that due to the investment returns depend on different circumstances of
investment properties, the modern portfolio theory is an inaccurate guide for real estate asset
allocation (ibid). However, they compared two different properties' performance and the returns of
the two properties are definitely different. They reported that diversification by real estate type and

The Capital Asset Prising Model
Abstract: This thesis paper compares the in and out of sample predicative accuracy of 3 CAPM
based models, "The Capital Asset Prising model" Sharpe (1964), "The Three Factor Fama–French
Model" Fama–French (1993), "The Fama–French Five Factor Model" Fama–French (2013). The
relationship of in–sample model strength to out–of–sample predictive accuracy is to be determined,
by dividing each models portfolio into four segments, High Adjusted R2 , Medium Adjusted R2,
Low Adjusted R2, and a random mixture as the control. The research uses the S&P500 as the
"market" portfolio. Using ten years of monthly data from the period between 1st January 2004 to the
31st November 2014, as in sample data. The portfolio returns were then monitored for an ... Show
more content on Helpwriting.net ...
Literature Review:
Different models are available when determining the discount factor of a company or most any–
other security, the most common of which are based on the Capital Asset Pricing Model. First
published in 1946 "The Capital Asset Pricing Model", (CAPM), by William F.Sharpe, described as
the "centrepiece of modern financial economics." is the first model to quantitatively represent the
compensation an investor would require for both the time value of the money invested and the level
of systematic risk exposure, using a simple yet elegant equation to represent the relationship
between required returns and standard deviation. The CAPM is built on the earlier work of Harry
Markowitz PAPER NAME AND DATE on diversification and modern portfolio theory, when
combined the two theories act as the baes of modern portfolio constructions, with Markovitz
measuring risk and how diversification affects risk and CAPM assessing the required rate of return.
The CAPM bases the required rate of return on equity of a company based on an assumption of
linearity between the level of risk a security carries and its returns. Variance has been widely used as
a measure of risk, usually represented as the standard deviation of the returns of a given security.
The relationship of risk and reward is the product of the security's covariance divided by the
covariance of the market,

Strategic Analysis For Ict Business
Strategic Analysis Portfolio Name: Student Number: Introduction In any business, strategic is the
main part for the business sector in the world. Strategic management is an organizational
management activity that is utilized to manage the organizational decision. Strategic analysis is the
basic sector for the business. So, it is more essential for analyzing the business strategy. Many
marketing planning like as behavioral, strategic, commercial etc very good for a great business. So,
this sector is very crucial for the business sector of any country. In the organization, strategic
management can be practiced by the manager to get more extra advantages and extra business
advantages to create more profits also. Then strategic analysis for ICT business in India and
Bangladesh has been analyzed by using Porter's five forces model. Lastly this essay also provides
some critical success factors for the ICT business in India and Bangladesh. Here, the different
factors for ICT business in global concern have been discussed in this essay. ICT industry in India
and Bangladesh are discussed here mentioning the key drivers with strategic analysis. Knowledge
and Understanding a) Researching and evaluating a range of key issues in strategic management.
ICT business of India & Bangladesh are increasing day by day. Some strategic management is also
seen in these processes. According to Lessem (1987), different countries follow different rules and
prepare different policies

A Random Walk Down Wall Street Essay
A Random Walk Down Wall Street
There is a sense of complexity today that has led many to believe the individual investor has little
chance of competing with professional brokers and investment firms. However, Malkiel states this is
a major misconception as he explains in his book "A Random Walk Down Wall Street". What does a
random walk mean? The random walk means in terms of the stock market that, "short term changes
in stock prices cannot be predicted". So how does a rational investor determine which stocks to
purchase to maximize returns? Chapter 1 begins by defining and determining the difference in
investing and speculating. Investing defined by Malkiel is the method of "purchasing assets to gain
profit in the form of reasonably ... Show more content on Helpwriting.net ...
I used the term speculated because often times these forecasts were not based on any kind of asset
valuation or operating game plan. It was purely based on the "hype" surrounding the security. These
were short–term investments and were based on the premise "that a buyer could pay any price for a
stock as long as they expected future buyers to assign a higher value". This theory is also known as
the "greater fool" theory.
Now that the two theories have been explained, let's look at some historical examples from Malkiel
that really paint the picture in chapter 2. The first speculative craze noted was over tulips in the
seventeenth century in Holland. The tulips were brought from Turkey and the Dutch valued the
beauty and rarity of the new flowers. Thus the prices for the flowers inflated. As the prices rose
merchants would by stockpiles to sell to the public. The more expensive they got the more the
public believed they were making smart investments. People would sell off the personal belongings
to get their hands on the bulbs. The mania surrounding the bulbs created a bubble that would soon
burst. The prices got so high some people decided to cash in and sell them to make a handsome
profit. Soon others joined in causing a snowball effect and the prices tumbled. Eventually there was
no demand and they were worthless. Many went

Capital Asset Pricing Model ( Capm )
Critically discuss the uses and limitations of the CAPM
Introduction
Capital Asset Pricing Model (CAPM) was developed in 1964 based on Modern Portfolio Theory.
CAMP widely used in investment decisions and financial areas of the company. The main research
of CAMP are the relationship between expected rate of return and risk assets in the stock market, as
well as how the equilibrium price formation. In terms of the valuation of assets, CAPM primarily
used to determine whether the securities market be mispricing. Capital Asset Pricing Model measure
risk by non–diversified variance, it linked risk and expected return, any non–diversified risk assets
can be described by the value of β, then calculate the expected rate of return. Rate of return required
by investors is equals to the discount rate. The limitation of CAPM are: CAPM assumptions
inconsistent with the actual; CAPM Should apply only to capital assets, human assets may not be
traded; Estimated β coefficient represents the past of variation, but investors are concerned about the
security volatility of future price; In the actual situation, the risk–free asset and the market portfolio
may not exist.
Main Body
The advantage of CAPM is that it provide a clear and intuitively explicit forecast in regard to how to
measure risk and the connection between risk and expected return(Fama & French ,
2004).Accordance to the provisions of CAPM, Beta coefficient is used to measure an asset systemic
risk, it is used to measure the

Risk Reduction by Diversification of Porfolio
Over a long time horizon researchers have contradictory views about investment in portfolio, are
"Put all your eggs in one basket" and "Don't put all your eggs in one basket". The latter one is
supported by many and known as diversification [7]. Diversification is associated with reducing risk
and maximizing returns of investors and portfolio managers i.e. risk–return trade off. An investor
gets benefitted by spreading his scarce resources over various assets [2, 8] which maximizes return
and minimizes risk.
Diversification is needed to minimize volatility i.e. measure of risk and maximize return. After the
global financial crisis in US and Eurozone crisis, market is continuously enduring high volatility.
Increased market volatility imposed much risk to investments which can be minimized by using
diversification effects of other types of financial portfolio securities [9]. The phenomenon to be
considered can be correlation between two securities.
The pioneer and elegant model given by H. Markowitz [2] and J. Tobin [3], analyzed in his research
that risk reduction by diversification of portfolio closely depends upon correlation of mean returns
of individual securities of portfolio. H. Markowitz also analyzed about portfolio diversification that
if there is low correlation between two securities then there are more portfolio risk diversification
benefits. While correlation between securities shows direct relation with portfolio diversification
benefits but the argument

Advantages Of Portfolio Optimization
Robust Optimization Approach to Multi–Period Portfolio Selection Progress Report
Introduction
Investors always seek for a way that they can get back greatest return while enjoying minimized
risk. Instead of investing in a single asset, holding a portfolio is obviously less risky. However, how
to select the best portfolio among tens of thousands of assets in today's financial market? The
stringent need of investors promote the raising of modern portfolio theory. In 1952, Harry
Markowitz [1] established the fundamental model of modern portfolio theory: the Markowitz
model, also called the mean–variance model. This model aimed to achieve a tradeoff between the
expected return and the risk of return. As shown in Figure 1, among all efficient portfolios, the
efficient frontier consisted of all those with highest return at each given risk level. C_1,C_2,and C_3
were the investors indifference curves which showed that traders prefer portfolios with high return
or low risk. The tangent point R of the highest indifference curve and the efficient frontier gave the
optimized portfolio. Figure 1: Efficient Portfolio and Trader's Indifference Curve in ... Show more
content on Helpwriting.net ...
One direction among them is the robust portfolio optimization. It was carried out to compensate the
instability and sensitivity of the classical optimal model due to the uncertainty of the coefficients of
variables. This paper aims to use the robust optimization techniques to take input uncertainties into
consideration. Moreover, the model achieved should be applicable to multi–period portfolio
selection problems. In the next section, previous studies on this topic were reviewed. The following
section introduced the method used to get the final result. Section 4 discussed the achievement until
now and the problems that have arisen. The final section summarized the current research progress
and possible direction in

Pros And Cons Of Capm
1. Introduction
Capital asset pricing model know as CAPM is a model for calculates the required rate of return for
any risky asset. This method is often used to determine the fair price of an investment should be.
This essay will discuss about usage of CAPM in stock market industry, through probe the
advantages and limitation of CAPM to this industry.
2. Concept of Capital asset pricing model
During 1952, Markowitz came out with a theory based on diversified investment is able to construct
the risk–averse investors. He diversified investment portfolio theory and efficiency of the priory
rigorous mathematical tools as a means to demonstrate risk–averse investors in a number of risky
assets in construct the optimal portfolio methods.
But due ... Show more content on Helpwriting.net ...
One of the example is a risk–free rate of return is the United States 10 years government bonds. If
stock investors need to bear additional risk, then he will need on the basis of the risk–free rate of
return in order to obtain the corresponding premium. Therefore, equity market premium is equal to
the market expected rate of return. Equity risk premium is the stock market premium and a β
coefficient of the product.
4. Pros and Cons of Capital asset pricing model
There is only one reason investors receive higher returns make that investment in high–risk stocks.
Therefore, CAPM occupy dominant position in this modern financial environment (Fama and
French, 1993).
4.1 Advantages
The biggest advantage of CAPM is simple and clear. It is the prices of any kind of risky securities
are divided into three factors: the risk–free rate of return, price and unit risk. Throughout these three
factors combine together, it will provide a clear picture for the analyst. In addition, another
advantage is the usefulness of CAPM. It allows investors to review and evaluate selection of various
financial assets competitive quotes based on the absolute risk rather than the total risk. Investors in
the financial market have adopted this method as it able to solve the general problem of investment

The Importance Of A Professional Portfolio Managers
Emotional Knowledge is Key to Investment Success
Understanding emotions and how we process information to make decisions is vital to investment
success. This is true whether you manage your own portfolio or whether you have hired a
professional portfolio manager to handle the task. The sad reality is that most professional money
managers don't understand that their emotional judgements are likely harmful to portfolio
performance. Professional money managers are at the mercy of the investor's behavioral biases
without even realizing it. For example, if a professional money manager believes in investing for the
long–term knowing that he will suffer from underperformance from time to time, he may not realize
it but when he begins to ... Show more content on Helpwriting.net ...
These are automatic and we generally have no control over them. System 1 is what gets us in
trouble when we are making investment decision based on probability. System 1 can also be learned
skills such as mathematics. When I ask you what 2 + 2 equals you likely did not hesitate one instant.
It was automatic and effortless. System 2 requires attention and effort. When I ask you what 23 x 56
equals you first hesitate then begin to work through the problem. It requires you to draw on skills
you do not use every day. System 1 is generally good at making decisions based on initial reactions
however it is biased and has little understanding of logic or statistics. Both systems fight for our
attention and we generally allow system 1 to overpower system 2 since we know system 2 is lazy.
Here is an example of the laziness of system 2 from the book, "Thinking Fast and Slow", by Daniel
Kahneman.
A bat and ball cost $1.10
The bat costs one dollar more than the ball.
How much does the ball cost?
The first number that comes to your mind is from system 1. I am guessing that most people have
guessed $0.10, which is wrong. Now that I have told you that it is wrong you system 2 will kick in
to try and figure out the true answer. The true answer is $0.05. If the bat costs one dollar more than
the ball it will cost $1.05 and the ball will

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