6392 S1, 2018
Major Group Assignment.
You want to form a portfolio of investment consisting of shares listed in the Australian Stock Exchange (ASX). Select 7 shares from the ASX listed securities/ companies. You can collect the data of your own from any data sources such as ASX website, yahoo finance etc. Use monthly share price data from January 2001 to December 2017. To perform the analysis:
1. Collect information on the shortest maturity Treasury Notes (Treasury security) rate in Australia as a proxy for risk-free rate.
2. Calculate the monthly returns of each share and of the market index using the share price indices and market price index (All Ordinaries Index).
3. Calculate the expected (average) return of each of the shares and of the market using the returns calculated in (2).
4. Calculate the beta for each of the 7 shares, running a regression of a share’s returns (Ri) on the market return (Rm). It is the same as calculating the SLOPE in Excel.
5. Calculate the fair (risk consistent) return for each share applying the capital asset pricing model (CAPM) and using the information you have gathered.
6. From the information you gathered, draw the security market line of the market (ASX).
7. Plot the shares, you analysed, on the graph of the security market line drawn in (6) above.
8. From your plot in (6 &7) above, identify the shares you will select to be included in your portfolio. Explain your rationale for the selection and rejection of shares. [Note: you need to have minimum two shares in your portfolio. If you do not find two suitable shares in the 7 shares which you have analysed, analyse some more shares until you get at least two suitable shares for investment. However, if you find more than two suitable shares in the five shares you have analysed, include all the suitable shares in the proposed portfolio]
9. Calculate the expected return and beta of your portfolio considering equal investment in each share. Plot the portfolio (risk and return) on the graph of the security market line drawn in (6) above. Comment on the portfolio risk and return.
10. Why should you consider your conclusion in part (8) above to be less than certain?
NB: Students are required to use more than ten (10) recently published (published in 2018 or before, starting from 2018 to backward) journal articles published on or related to risk (beta) and return relationship as references, not websites addresses.