CAPM and Portfolio Analysis

Task 1

a. Using the first three years of data (October 2009 to October 2012) regress the monthly log-normal returns of the five companies against the log-normal returns

for the FTSE All-Share Index. (You can use the Regression function in Excel ‘Data Analysis’)
(15 per cent)

b. Briefly analyse the relationship of the individual security performances to the performance of the FTSE All-Share, focusing in particular on the alpha, beta

and R2 estimates.
(10 per cent)
Task 2

Assume that at the start of October 2012 you owned an equally weighted portfolio of the four companies.

a. Calculate the actual annual return on the FTSE All-Share Index for both years starting from October 2012 and October 2013.
(10 per cent)

b. Take the FTSE All-Share returns as market returns and, using the alpha and beta sample estimates generated in Task 1, calculate the expected annual returns for

each asset and for the portfolio using the Single Index Model approach.
(10 per cent)
Task 3

a. Calculate the actual annual returns for each company and for the portfolio over the period from October 2012 to October 2014.
(10 per cent)

b. Compare the actual and expected returns and comment on the scale of the abnormal returns over the two-year period from October 2012 to October 2014 for both

the individual companies and the portfolio.
(15 per cent)

Task Four

Assess how well the model performed in predicting the actual return on the portfolio, given that it was based on a restricted sample of historical data.
(30 per cent)

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Parameter Estimation Period
Date   Company Share Prices October 2009-October 2012
Easyjet   Marston   Balfour   Pace   FTSE All Share
10/1/2009   387.2   73.5   209.6   204.3   2593.8
11/2/2009   372.9   66.6   208.7   206.6   2611.9
12/1/2009   379.9   67.5   203.1   192.2   2710.2
1/1/2010   361.9   71.0   200.4   192.5   2807.0
2/1/2010   409.7   71.9   210.2   176.8   2689.0
3/1/2010   429.8   73.7   218.7   175.0   2764.6
4/1/2010   483.3   74.6   228.8   176.2   2943.9
5/3/2010   484.3   74.6   234.4   170.4   2792.5
6/1/2010   423.1   75.9   203.1   146.1   2661.7
7/1/2010   401.3   75.2   185.5   147.0   2485.7
8/2/2010   417.5   79.7   205.5   199.8   2784.2
9/1/2010   368.4   77.3   194.4   191.8   2767.5
10/1/2010   377.6   77.2   210.8   168.7   2889.7
11/1/2010   465.3   83.3   223.4   187.3   2945.6
12/1/2010   445.1   87.0   230.3   170.3   2919.4
1/4/2011   469.1   93.7   262.0   170.0   3119.0
2/1/2011   386.5   86.4   273.0   179.5   3091.0
3/1/2011   363.3   81.5   275.8   196.6   3079.7
4/1/2011   341.0   81.4   274.8   143.3   3116.8
5/3/2011   361.6   91.1   270.0   149.9   3160.9
6/1/2011   373.0   91.1   253.3   107.2   3092.5
7/1/2011   370.6   90.8   259.7   101.1   3120.3
8/1/2011   373.2   85.8   234.0   105.7   3004.4
9/1/2011   357.2   81.4   204.6   103.7   2812.6
10/3/2011   352.8   77.0   201.8   88.5   2628.4
11/1/2011   351.7   80.6   206.6   68.0   2795.6
12/1/2011   389.6   81.7   212.1   49.1   2824.7
1/2/2012   402.7   82.6   236.7   68.6   2923.6
2/1/2012   458.7   87.3   236.2   82.9   2990.3
3/1/2012   460.6   87.1   235.4   84.8   3073.7
4/2/2012   467.6   89.4   241.8   68.4   3053.4
5/1/2012   492.9   88.1   230.9   72.4   3020.6
6/1/2012   465.5   87.4   232.0   87.7   2732.7
7/2/2012   510.7   95.0   264.2   100.1   2927.1
8/1/2012   538.1   100.5   240.4   150.3   2963.3
9/3/2012   512.1   102.9   244.1   172.1   2996.5
10/1/2012   567.8   105.1   271.0   164.8   3038.3
Performance Assessment Period
Date   Company Share Prices October 2012-October 2014
Easyjet   Marston   Balfour   Pace   FTSE All Share
10/1/2012   567.8   105.1   271.0   164.8   3038.3
11/1/2012   608.6   116.6   276.5   178.6   3064.7
12/3/2012   698.4   114.4   226.7   177.9   3067.1
1/1/2013   734.8   116.9   249.2   183.6   3159.7
2/1/2013   923.5   125.6   236.9   222.8   3327.2
3/1/2013   997.8   131.9   252.3   228.1   3358.3
4/1/2013   1059.6   133.4   210.0   237.2   3420.0
5/1/2013   1108.6   137.8   190.7   244.6   3402.3
6/3/2013   1197.9   137.6   209.6   247.6   3443.6
7/1/2013   1321.5   136.4   203.3   246.6   3338.6
8/1/2013   1403.9   149.0   231.3   313.6   3543.7
9/2/2013   1259.7   152.2   237.2   286.4   3460.5
10/1/2013   1293.1   139.3   259.9   255.1   3445.1
11/1/2013   1271.5   145.5   266.7   303.7   3586.0
12/2/2013   1388.2   143.7   241.8   306.8   3519.5
1/1/2014   1507.0   140.0   272.2   313.9   3595.8
2/3/2014   1604.1   143.2   266.3   347.4   3472.4
3/3/2014   1675.0   145.0   297.6   398.1   3608.6
4/1/2014   1773.0   146.4   282.1   451.3   3584.5
5/1/2014   1653.0   144.7   275.9   357.6   3633.6
6/2/2014   1559.0   150.8   226.4   359.9   3666.6
7/1/2014   1349.0   147.0   224.9   352.4   3630.4
8/1/2014   1298.0   140.5   235.5   315.5   3559.0
9/1/2014   1342.0   148.0   230.7   328.5   3644.6
10/1/2014   1396.0   140.7   171.8   296.7   3499.0