Finance and Accounting

Finance and Accounting

Portfolio Optimisation and Portfolio Performance Measure

Project description
This coursework is designed to illustrate the practical aspects of portfolio optimization and the performance measurement. This exercise involves the
following tasks.

1. By doing the optimization using Excel Solver, you are required to construct a mean variance efficient portfolio frontier for any 10 randomly selected ordinary shares listed on a stock market. For all your calculations, you should use the 60
monthly returns, sample means, standard deviations, and co-variance and correlation matrices. Plot the portfolio frontier and comment on the weights of
the portfolios along the portfolio frontier including in your discussion the correlations among the 10 shares.

2. By Identifying and combining a risk-less asset with the 10 shares, plot the portfolio frontier and select the tangent portfolio on the portfolio frontier.
Provide the rationale for your choice of the riskless asset.

3. Assume that the short selling is not allowed, how your efficient frontiers would differ from those with short selling allowed in questions 1 and 2 above.

4. Identify the appropriate benchmark index and critically evaluate the performance of the tangent portfolio selected above using various risk-adjusted
portfolio performance measurement indices. Justify your choice of the benchmark index.

5. Comment on the limitation of your analysis and critically evaluate the gains in
the performance of the identified portfolio along with the associated risks from international diversification, particularly investment in the shares listed on emerging stock markets.

You are expected to demonstrate the knowledge, understanding and effective use
of the analytical tools, underlying theory, and concepts taught in the lectures and
seminars.

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