Case Study

Topics: Stock market, Risk, Stock Pages: 24 (6560 words) Published: September 14, 2013
victoria university|
Case Study Number 2|
BEO2431 – Risk Management Models|
|
Students: James Zervos (s3856482)Daniel Brittain (s3854471)Mengjing (Annie) Li (s3764805)Xiao Wang (s3782256)| Tutor: Victoria GonzalezTutorial Session Time: Friday 2pm – 3pmWord Count: 6,022Due Date: 13.5.2011|

The purpose of this report is to investigate the different factors that affect the stock market. Also to detail these factors and numerical calculations to make sense of the situations, in regards of the changes in prices in the stock exchange.|

Table of Contents

TASK 1: Monthly Share Prices Data Interpretation……………………………………….3 1. Computed and Plotted Returns of Observed Securities…………………………………..3 2. Descriptive Statistics, Description and Interpretation……………………………………8 3. Estimation of Correlation Matrix and Interpretation of Relationships…………..11 4. Calculation of Value at Risk (VaR) of Portfolios……………………………………………13 5. Ranking of Investments in Order of Preference of Investor Mr. X………………….15 TASK 2: Market Model…………………………………………………………………………………17 1. Estimation of Systematic Risk (β coefficient)……………………………………………….17 2. Interpretation of estimated Systematic Risks (β coefficient) of securities……..19 3. Validity of the Models through Null Hypothesis and Alternative Hypothesis…21 4. Interpretation of the estimated. R2 and Adj. R2……………………….……………………22 5. Which shares are undervalued, overvalued or correctly valued based on the CAPM?.................................................................................................................................................24

Task 3: Calculation of Risk-Adjusted Performance.................................................26 1. Sharp Measure for each security………………………………………………………………...26 2. Treynor Measure for each security……………………………………………………………..27 3. Portfolio (RIO, ANZ and CBA) risk calculation using Sharp Measure…………….28 4. Portfolio (RIO, ANZ and CBA) risk calculation using Treynor Measure…………29 5. Risk versus Return of each Security against the Market, ASX200………………….30

TASK 1: Monthly Share Prices Data Interpretation
1. Computed and Plotted Returns of Observed Securities
For the purpose of this case study, the financial securities are observed and are compared with each other. Firstly, each are graphically plotted in order to simplify the results allocated monthly within a period. The following are these graphs and each are individually observed.

The Australian Stock Exchange (ASX)

The plotted graph of the returns for the Australian stock exchange or the ‘ASX’ illustrates a very low volatile set of returns for the first half of the plotted graph which usually indicates positive or strong market growth for the period.

Midway through the graph there is a clear stock market crash with a very sudden decrease/drop in the market which could have been caused by any number of reasons, including a chain affect from other various stock markets such as the US. The remaining returns of the ASX stock market after the stock market crash is far different to the earlier years, there is an illustration of high volatility in the market indicating poor growth in the market, this may be a consequence of the stock market crash as it responding to the crash.

RIO Tinto

The RIO Tinto plotted returns graph illustrates a similar comparison to the ASX returns, as the share returns begin the recorded returns with low volatility which indicates high or positive growth in the market.

The RIO Tinto plotted returns graph illustrates a similar comparison to the ASX returns, as the share returns begin the recorded returns with low volatility which indicates high or positive growth in the market. In comparison there is a stock market crash at the same point in time, which indicates that there must have been a global stock market crash as this is apparent in more than one of the returns graphs and therefore the shares...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • case study Essay
  • case study Essay
  • CASE STUDY Essay
  • Case Study Essay
  • Case Study Research Paper
  • case study Essay
  • Case Study Essay
  • case study Essay

Become a StudyMode Member

Sign Up - It's Free