Portfolio Management Question Optimal Risky Portfolio

Question

Prepare a theoretically and empirically sound report with evidence of critical understanding of portfolio management. In particular, the report requires that you:

Select 10 stocks traded on the US markets and collect their monthly returns from the CRSP dataset on the WRDS website. To be included in your analysis each stock must have observations on monthly returns for the 15-year period from January 1996 to the end of 2010. Include the names, ‘PERMNO’ and stock exchanges of your sample companies. Collect the 30-day Treasury-Bill rate as the proxy for the risk-free rate. Collect the monthly return data of the CRSP value-weighted index as a proxy for the market portfolio.

Present descriptive statistics of your stocks (ie., sample estimates of the mean return, variance, skewness, kurtosis and risk premium), along with a matrix of correlation coefficients. Construct the efficient frontier and find the optimal risky portfolio using your sample stocks based on the Markowitz methodology, assuming no difference between the borrowing and lending rates. Present the descriptive statistics of your optimal risky portfolio and critically analyze the benefit of diversification achieved and test whether the time-series of returns on your optimal risky portfolio is normally distributed.                                                                   

.Construct your complete portfolio that allocates assets between Treasury-Bills and your optimal risky portfolio for two cases:

  • A is present, while B = 0
  • Both A and B are present in the above utility function. Present descriptive statistics of your complete portfolios. Critically compare your complete portfolios between both cases using graphs, equations, analytical findings and theories.

 

Summary:

The essay in portfolio management deals with optimal risky portfolio. Here in the case, stocks of 10 companies listed in US stock exchanges have been selected. With the help of monthly income of the companies and monthly return data from CRSP, value-weighted index is calculated. Descriptive statistics of the stocks and an efficient frontier and the optimal risky portfolio has been calculated with Markowtiz methodology.

Total word count is 2295

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