MN5909 Individual Assignment Description and Guidance

1.0 Assignment description and requirements:

The assignment aims to assess students’ understanding of the main theories and models in modern
portfolio theory and investment analysis. It also places great emphasis on evaluating the module
participants’ practical skills of applying appropriate financial quantitative techniques to complete both
basic and intermediate portfolio optimisation tasks.

The main exercises have been designed as follows: the students are expected to accomplish a series of
portfolio optimisation tasks. This involves constructing individual portfolios with risky assets and
graphically generate the portfolio efficient frontier; re-defining the portfolio efficient frontier after
introducing a risk-free asset and finding out the tangent portfolios; the optimisation calculus will be done
by using the Excel Solver file provided. Furthermore, the students should evaluate the performance of the
constructed tangent portfolios using various risk-adjusted measures such as Sharpe-ratio, Modigliani and
Modigliani measurement and Jensen’s Alpha. In addition, relevant theory questions are integrated into
the quantitative exercises.

The assignment MUST be submitted for a plagiarism check on the Turnitin assignment on the module
Moodle site. The work will NOT be marked if students do not carry out the plagiarism check. Moreover,
Excel files which contain details and procedures of calculations should be submitted together with the
assignment.

The assignment weighting is 70% in terms of the module assessment and the submission deadline is
midday of 8th May 2023. In general, the assignment will be marked considering the right choices of the
theories and techniques, the accuracy of calculations and the clarity of the analysis. The development of
critical analysis of the issues raised in the exercise by using a diverse set of international journals,
textbooks and other publications gives higher marks. The indicative word length for the assignment is
2000 words excluding calculations, bibliography and appendices.

In particular, you are required to

Choose and use your own data to accomplish the following portfolio optimisation and performance
evaluation tasks:

a) Select ten stocks from five different industries e.g., energy, pharmaceutical, retailing, telecom
communications and technology industry etc. listing on the London Stock Exchange Market. To
note that the total capital you have is £10,000. You are expected to choose 2 stocks from each of
the industries. You need to define your portfolio style using one of the following criteria:

 High beta (e.g., beta>1)

 Low beta (e.g., beta < 1)
 Low P/E ratios (e.g., P/E <15)
 Large P/E (e.g., P/E>25)
 Small Cap (e.g., market capitalisation between £10m - £603m)
 Large Cap (e.g., market capitalisation between £1.5bn - £110bn)

Bloomberg hints and steps:

Use EQS to search for stocks and create a portfolio of the stocks from your search in PRTU.

b) Using weekly price data ranging from December 2019- December 2022, calculate expected
return, standard deviation, correlation matrix of assets for the ten stocks selected in a). Comment
on the significance of beta used in the single factor market model.

Bloomberg hints and steps:

Use Beta Screen function to find out the historical beta and Coefficient of determination R 2.

c) Construct portfolio efficient frontier for the ten selected stocks by using Excel Solver. Please
comment on the shape of the efficient frontier and discuss the practical implications of this
efficient frontier in portfolio management.
 d) Restructure your portfolio by optimally combining a risk-free asset with the ten stocks. You are
required to identify the tangent portfolio and discuss the implications of this new efficient frontier
in portfolio management.

e) Following task d) please critically evaluate the tangent portfolio performance by comparing with
the market portfolio i.e., FTSE-All Share Index using the risk-adjusted indices: Sharpe-ratio,
Modigliani and Modigliani measurement. Inference the outcomes of portfolio performance
evaluation in relating to the portfolio style defined in part a).

Bloomberg hints and steps:

Examine the top movers and lagers in your portfolio and check current prices and news for the stocks
in your portfolio using MOST and ANR function.

f) Drawing on De Bondt, Muradoglu, Shefrin, and Staikouras (2008) discuss and critically analyse
what is behavioural finance and its three main building blocks. In addition, briefly discuss three
widely documented phenomena (anomalies) which are difficult to reconcile with the efficient
market hypothesis.
This all calculation is done if you can add something can improve the assignment you
can add it separately on a excel sheet comes with this instruction. In order to pass this
subject I need to take 85% from 100 kindly do your best

2.0 Assignment writing guide start writing from here

The assignment writing guide tells you what is expected in the terms of structure and content.

Part 1: Introduction

Your assignment should have an introductory paragraph. Essentially the introduction should answer the
task a) by :
 setting the scene by briefly introducing the UK investment environment between 2019-2022;
 justifying how you have defined your portfolio style and your choice should be supported by
relevant extant literature.

Part 2: Main sections

The main sections of your assignment should follow the order of the task b)-e) .

Each section should have a heading specifying the contents of that section. Only one major topic area (or
a linked series of smaller topics) should be in each section. For example:

Section 1: Measuring return and risk in which you should summaries and describe the expected
return, standard deviation ( and beta) , correlation matrix of assets, and the basic descriptive statistics
for the ten stocks. Discuss and comment on any relevant observations for example if the week return is
positively related to standard deviation ( or beta) ; if there is any unusual pattern between risk and return
according to your calculations; if there is any pair correlation is exceptional high or low and imply the
reasons.

Section 2: Construction of portfolio efficient frontier in which you need to provide the graphical
presentation of the portfolio efficient frontier and more importantly to explain its empirical implications in
portfolio management.

Section 3: Portfolio construction with a risk-free asset in which you are required to present a new
portfolio efficient frontier after combining a risk-free asset. Make sure you explain the rationale and
implications of including a risk-free asset in portfolio investment. Your arguments should be supported by
credible sources.

Section 4: Portfolio evaluation in which you are expected to critically evaluate the tangent portfolio
performance against the market portfolio based on the calculated risk-adjusted measures.

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Section 5: Behaviour Finance in which you need to discuss and critically analyse what is behavioural
finance and its three main building blocks. In addition, briefly discuss three widely documented
phenomena (anomalies) which are difficult to reconcile.

Part 3: Conclusion

Your report should have a concluding paragraph which should

 inference the outcomes of portfolio performance
 reflect and comment on the choice of portfolio style made in task a) . For example, is the portfolio
outperforming or underperforming the market portfolio because of the style of the portfolio?

3. 0 General guidance on what will earn high marks (and what will not)

 This assignment lays emphasis on the demonstration of both of ‘hard skills’ such as ability to

construct and evaluate portfolio investment; and ‘soft’ skills such as the ability to use information

technology creatively, communicate ideas and information clearly, and work effectively as part of

a team. These skills improve self-awareness, self-confidence and employability. ‘Hard’ skills will

be adequately reflected in the Excel spreadsheet (this is not part of your word count) and are not

given an unduly high weight as far as this assignment is concerned; it is therefore possible for an

assignment to earn a relatively low overall mark even if it is numerically very accurate.

 High marks will be earned when the assignment is well structured and logically presented. It is

crucial for the assignment to be original and offer insights to portfolio investment. Furthermore,

the arguments are based on credible sources.

 Sources that are credible: Your textbook, professional articles, and peer-reviewed journal articles

are credible sources. All suggested sources on the reading list are credible sources.

 Sources that are not credible: Wikipedia, Investopedia,businessdictionary.com,

knowledgegrab.com, transtutors.com, coursehero.com, ukessays.com, tutor2u.net….etc.

 Reports that are poorly structured, grammatically poor, repeat what is in the textbook or readings

without adapting to the business under consideration, incomplete in one or more areas, poorly

argued, use unreliable sources, and lack good citation will earn low marks.

 Your reference list (this is not part of your word count) should be comprehensive, accurate, and

in the correct format. For more details, please go to the UG Information Page on Moodle. There

are two blocks are particular useful to help you with referencing and academic writing: ‘Writing

and Submitting Your Work’ , ‘Harvard Referencing and Intro Writing Skills’.

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4.0 Rubrics
The marking rubric tells you what marks to expect for structure, professionalism, content, citation, and so on, and indicates what is expected for each
performance standard