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Economics assignment




Question;Question Two (30 marks);You have just;finished your postgraduate studies and secured a job with a well-known fund;manager. Before you start work, you are;keen to learn whether (i) the CAPM works in practice, and (ii) ifa;portfolio diversified across industries offers any benefit over one diversified;within a given industry. Use the monthly returns for 48 industry;portfolios, the excess return on a broad market index and the one-month;(risk-free) treasury bill rates provided on Wattle in the Excel spreadsheet;entitled ?Assignment Data.xlsx? to;investigate these issues. Specifically;a.;Use this data to estimate each;portfolio?s security characteristic line (?SCL?) and, in doing so, obtain an;estimate of its true beta coefficient;b.;Use the findings from a. to;estimate and plot the Security Market Line (?SML?), and;c.;Formally test whether your;results lend support to the Sharpe-Lintner CAPM.;Present your findings, including graphs where useful, in a written;report comprising only the following sections;-;Introduction: The introduction should;state the aims of your report as well as overview the theoretical strengths and;weaknesses of the CAPM;-;Data and Methods: This section should;include a description of the data, provide descriptive statistics, summarise your;methodological approach and detail any formulas used in your report;-;Results: The results section should;include statistics, tables and graphs that are relevant to your investigations;-;Conclusions: This section should see you;interpret your results and conclude whether they are consistent with (i) the CAPM holding in;practice, and (ii) the existence of any benefits todiversifying across industries rather;than within a given industry.;It should also include a brief discussion of any inherent weaknesses your;data, models and test may have, how these issues could be circumvented and;where possible, whether or not your results are consistent with those;documented in the extant literature, and;-;References: This section should include;the bibliographic references of any studies cited in the course of your report.


Paper#57073 | Written in 18-Jul-2015

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