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Portfolio and Markets Analysis 2022-23


Submission deadline: 04 June 2023


Read the policy on coursework submission and plagiarism from the PG students’ handbook carefully before you commence this coursework.

Aim and objectives:

This coursework aims to apply the techniques gathered from lecture 1 to 6. In particular, we will be (i) estimating security returns, standard deviations, betas, covariances and correlations; (ii) selecting securities using the critical C approach; (iii) clarifying the corrections and limitations of estimating betas using historical price information.


  • Estimating security’s basic statistics

Select a sample of at least 10 different quoted companies on well-organised stock exchanges. Typical stock exchanges are London Stock Exchange and New York Stock Exchange. Use Bloomberg or yahoo finance to obtain share prices.

Obtain the sample companies’ monthly share prices for the latest 5 years. Estimate for each company its average return, standard deviation, beta and its co-variance and variance matrix with the other sample companies.

  • Obtain a suitable risk-free rate and using the technique from Lecture 1 (Chapter 6 EGBG and Homework Chapter 6 – Q4) to determine the portfolio weighting of each security for the efficient portfolio (i.e. where the capital market line touches the efficient frontier).
  • Selecting securities for the optimal portfolio

Using the techniques discussed in Chapter 9 of EGBG and assuming that (a) short sales are not allowed and (b) short sales are allowed, determine the optimal composition of your portfolio.

In order to complete this part, you will need to estimate the beta for each security.

Notes on the beta estimation:

This part of the coursework invites you to discuss the practical problems/issues relating to the estimation of beta using the Ordinary Least Square regression (OLS) typically adopted in empirical literature of CAPM. You should consider how sensitive the beta of each security in above would be (i) against different sample periods, data frequencies and market proxies. In particular, how the different values of beta might affect your optimal portfolio.

Some additional considerations:
  1. Sample period: Typically, empirical researchers use a 5-year period for the estimation of betas. What would happen if we use a longer or shorter period?
  • Data frequency: Return can be measured over daily, weekly and monthly intervals. How sensitive is beta to the return intervals?
  • Discuss and implement beta adjustments (Blume’s, Vasicek’s).
  • Which market proxy would be the most appropriate for estimating betas? FTSE100 vs FTSE all or other broader indices?

You should provide all workings and assumptions. Sources of materials used must be included and referenced in the text. Any materials downloaded from the Internet should also be attached to the coursework as an appendix.

References should follow the Harvard referencing system. Word count: 3000 words