FIN B385 Investment Management Assignment
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Due date: 23 April 2021
This assignment is a group-based project. Students will form groups of preferably FOUR to FIVE students. Each group will be required to participate in the trading game with making use of the investment knowledge and skills that they learnt.
The purpose of using Virtual Stock Exchange is to give you a better understanding of trading strategies and portfolio management. You will also learn a variety of financial instruments and their risks and rewards as they apply to asset management.
Overview and Goals
Acting as a prospective portfolio management team for a wealthy client, James, your potential clients have entrusted you with $1,000,000 to invest at your discretion for a period of 5 weeks. James is a successful business man and has savings of 80,000,000. James’ business has constant and rapid growth. James is 29 years old. James stated that “High volatility is good to his business” and “rapid return rate is a key to success”. Additionally, your prospective clients are considering other asset management teams (other groups of your classmates) and will be ranking each according to the success of their portfolio management. You will be able to track how you are measuring up throughout this exercise.
At the end of the trading period, if your clients are satisfied with your performance managing their portfolio, they will extend their relationship with you.
Specifically, they are concerned about the following criteria:
o Absolute return: The total dollar increase in the portfolio over the trading period
o Risk-adjusted return: The return on the portfolio taking into account the level of risk, as measured by the Sharpe Ratio. Assume the one-month risk-free rate (annual rate) is 3%.
To register your account, go to https://www.marketwatch.com/game/fin-b385f-game
Registration is free but please be reminded to use your GROUP NAME (e.g. T01G1) to register.
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Till 21 Mar 2021
22 Mar – 22 Apr 2021
23 Apr 2021
Practice for One Week
The MarketWatch Virtual Stock Exchange is available for practice trading starting from now on, but the competition does not begin until 9 Mar. I encourage you to use the practice trading period to fully understand the game mechanics, try some strategies, and get a feel for the market as it is now.
Your portfolio will be evaluated beginning on 22 Mar. You will receive the $1 million in assets to begin investing for your potential clients then.
You can trade any equities, bonds and exchanged-traded funds listed in the US stock markets.
The number of transactions during the whole investment period must be at least 5. A buy or sell order is counted as one transaction.
Any violation of the above rules may result in disqualification.
Sources of Information
Sources that you may find to be particularly valuable for your research include:
Wall Street Journal: www.wsj.com
Yahoo Finance: finance.yahoo.com
Daily Treasury Yield Curve Rates: www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Bloomberg Terminal in the library
Each report should be typed, single-spaced, 12 point font-sized and no more than 10 pages, excluding tables, appendices and references. Your trading report should include or address the following items:
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Suitability to your client
What is your client’s risk tolerance?
Why is your portfolio suitable for your client?
Your investment strategy
What is your investment style? Active or passive investment?
Active investing- Buy and hold, trend following, scalp trading, day trading, swing trading, mean-reversion trading etc. Which one you belong to?
Passive investing- Index fund, ETF, cost-averaging etc. Which one you belong to?
Asset allocation- How to allocate your capital into different stocks?
Diversification- How to reduce your portfolio risk by diversification?
Risk management- Any risk management mechanism used to control your trading risk? e.g. Stop loss, reward to risk ratio (2 to 1 or 1 to 1), hedging (such as using inverse ETF if necessary), position sizing(how to control your dollar risk per trade e.g. 1% of your total capital)
Market Timing- How to time the market? Your entry and exit strategies?
If necessary, please use portfolio theory, efficient market hypothesis, fundamental analysis, technical analysis, etc. to illustrate your investment strategy or philosophy.
Your action plan
You have to answer the following questions before each trade:
What to buy? When to buy? When to sell?
Explain the rationale for each of your investment decisions and show all your transactions in the appendix.
The absolute return and Sharpe ratio of your managed portfolio
The calculation of absolute return and Sharpe ratio should be shown clearly.
To develop the habit of a professional investor – review your trades and learn from every mistake.
Which positions underperformed for you? What factors created the performance gap? Internal (your trading skills) or external (company or economy) factors? Try to think deeper for the reason why the mistake made.
Each group has 10 minutes for presentation and 5 minutes of Q&A. Each group is also required to ask one question. A peer evaluation of team members will be conducted if necessary.
Assessment of this Assignment
The assessment of your FIN B385 Investment Management Assignment is based on the following three parts:
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(i) Report (70 marks)
a). Contents (60 marks) (see above)
b). Writing style and organization (10 marks)
Paper is written in the words of the group members.
Paper is well organized.
Writing style indicates that group has combined their efforts to make a single unified piece of work.
Spelling and grammar are correct.
(ii) The overall ranking of your portfolio based on the absolute return at the end of the trading period (15 marks)
The overall ranking of the portfolio
(Based on absolute return)
(iii) The overall ranking of your portfolio based on the Sharpe ratio at the end of the trading period (15 marks)
The overall ranking of the portfolio
(Based on Sharpe ratio)
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