UNSW-FINS3640-S2,2010-Week 6
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This document summarizes topics related to portfolio management and financial modeling. It discusses robust regression in Stata, residual plots, and identifying influential factors using multivariate modeling. It introduces concepts for part 2 of the course like discrete and continuous returns, matrix algebra, asset classes, and standard measures like standard deviation and correlation. Key models are discussed like the CAPM, security market line, efficient frontier, and modern portfolio theory. Excel skills are taught like using matrix functions to calculate returns, variance, covariance and the efficient frontier using Solver.
UNSW-FINS3640-S2,2010-Week 6
- 1. School of Banking and Finance www.banking.unsw.edu.au
- 3. Robust Regressionreg y x1 x2, robust
- 4. Residual Plotreg y x1 ... xn, bpredict res, rpredict yhatscatter res x1sktest resRead http://www.polsci.wvu.edu/duval/ps602/Notes/STATA/residuals.htmlRight after running regression
- 5. Part 1 of the courseStataStatisticsMultivariate modelingPractical applicationsIdentify influential factors and patternsModel and forecast stock performance and other business performance indicators (sales, NOPAT, growth, attrition...)Reflect in stock selection, portfolio optimization and investment strategyExample: "Do Wal-Mart, Target, Woolworths and Coles do well near Christmas?" You can test
- 6. FINS3640 - Investment Management ModelingPart 2Week 6 - 25 Aug 2010Introduction to using Excel and Matrix Algebrafor Financial Modeling
- 7. Discrete return, excess return, continuous return, arithmetic return, geometric returnMatrix algebraNormal distribution, cumulative distributionAsset classes: Equity, Fixed income, Alternative asset classes (real estate, venture capital, private equity)Index funds, large vs. small stocksStandard deviation, variance, covariance, correlation, variance-covariance matrix, correlation matrixAnnualized valuesNominal rateUtility functionFixed income: term structure (market expectation, liquidity premium), duration, convexityEquity and fixed income valuation modelsActive and passive portfolio managementEfficient market hypothesisBehavioural financeModern Portfolio TheoryRisk and ReturnCAPMSingle-index model (SIM)Efficient frontier with and without short-saleCapital Market LineSecurity Market LinePortfolio AdjustmentsAssumptions of each modelRevision (you should have known)
- 8. Required Reading: Reeves J. J. 2008Simon Benninga (SM), Financial Modeling 3eChapters 1, 8-13, 15, 18,25-29, 31, 33-35http://finance.wharton.upenn.edu/~benninga/Bodie Kane Marcus (BKM), Investments 8eChapters 1-9, 11-16, 18, 24-27Other materials that cover the same concepts are acceptedhttp://www.mhhe.com/bkm
- 9. James Farrell, Portfolio Management, 2eRecommended ReadingPhilippe Jorion, Value at Risk, 3ehttp://merage.uci.edu/~jorion/
- 10. Motivation: Why study Portfolio Management?What funds doOptimal inventory
- 12. Where would you be?
- 14. AssumptionAbsence of transaction costs
- 15. Arithmetic
- 16. Number of trading days per year#days per year = #days in observed period / #years252 is generally accepted
- 17. Returns
- 18. Annualization
- 19. Matrix Algebra using Excel
- 20. Matrix AlgebraYou should knowScalarUniform matrix, identity matrix, diagonal matrixMatrix addition and subtractionMatrix multiplicationMatrix inversion
- 21. Matrix Multiplicationm: number of rowsn: number of columns
- 24. Week 6 Exercises
- 25. Portfolio Expected Return & Variance
- 28. Case
- 31. Variance-Covariance MatrixWe hence name variance-covariance matrix
- 32. Efficient Frontiers with Excel Solver
- 33. Activate Solver
- 40. Enable Macros
- 41. Ctrl+1
- 42. Context Menu Bar: Select the object then observe the Ribbon