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Investment and Financial Markets Behaviour Assignment

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Added on  2021-04-16

Investment and Financial Markets Behaviour Assignment

   Added on 2021-04-16

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Investment and Financial Markets BehaviourStudent’s Name:Toh Jia Le AlondraStudent ID: 100485952Name of the University:University of DerbyDate of Submission:9 April 2018Word Count:
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3 | P a g eAnalyses of the Portfolio in Word Document:3. Analysing the choice of stock from a behavioural perspective:Wolfson (2017) stated that the choice of stock is based on behavioural conditions andperspective of the investors, which helps in formulating the portfolio for investment. The portfolio is mainly created for retirement purpose and the stocks with the least risk arechosen for investment purpose as main aim of the investment is to minimise the chance oflosses which incurs due to the volatility in the market. As such, framing into stocks withlower risk (Appendix show screenshot excel Sharpe Ratio) like Wilmar InternationalLimited, Singapore Telecommunications Limited, Raffles Medical Group Ltd andCapitaLand Mall Trust are chosen for the portfolio to maintain the level of return by reducingrisk from investment which were overconfident invested with higher weights (Haw ParCorporation Limited, China Aviation Oil, Sheng Siong Group Ltd, VICOM Ltd, ThaiBeverage Public Company Limited) in Gambler’s fallacy for higher return. (Appendix showscreenshot excel tracker higher weights)4. Using portfolio theory in determining portfolio asset allocation:With assistance of the portfolio theory, the asset allocation is conducted to determine meanvariance analysis. This relevantly helps in conducting the asset allocation, which helps inmaximising the expected return of portfolio for a given level of risk. In this context, Bai, J.,Philippon & Savov (2016) stated that with the help of portfolio theory investors can detectthe actual financial position of the company over the period. Additionally, the aim ofportfolio theory is to detect the actual level of return, which could be provided by theportfolio on defined risk level. Also, the portfolio theory indicates that selection of stock andasset allocation is solely based on investment scope of the investor, where it might hamperthe actual financial position of the investor.Relation to the chart on the right Armstrong III,F (2008), a diversified portfolio can beconsidered in which the securities chosen arediversified across asset classes (Eg: Equities,bonds foreign exchange, treasury instrumentsand etc.) diversify within asset class (Eg:Different industries/ sectors for equities) anddiversification through both local market andinternational. Having said that, Singapore markethas been narrowed down in this portfolio. However, Busch, Bauer & Orlitzky (2016)argued that diversified portfolio mainly loses itsfriction during an economic crisis, whichincreases risk and losses for each investor.
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4 | P a g e5. Analysing diversification of the initial 9 asset portfolio:The portfolio comprises of different sectors of stocks (Commercial Services and Supplies,Food and Staples Retailing, Diversified Telecommunication Services, Oil, Gas andConsumable Fuels, Healthcare Providers and Services, Pharmaceuticals, Equity Real EstateInvestment Trusts (REITs), Food Products and Beverages), which increases thediversification condition of the 9-asset portfolio. The portfolio is well diversified, whichcould help in increasing the level of return from investment, which reduces the actual riskfrom investment. Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016) stated thatdiversification process allows investors to hedge their exposure in the capital market byreducing the risk level and return from investment. Moreover, the diversification process thatis used in the formulation of 9-asset portfolio mainly helps in reducing the level of riskinvolved in investment. The segregated investment is conducted in the 9-asset portfolio,which can be identified from different level of industry stock, which is used in the portfolio. 5.1 Depicting the performance of the portfolio over the investment period: From the overall evaluation the performance of the portfolio has relevantly improved over theperiod. In addition, the investment scope of the portfolio could eventually help in generatinghigh level of returns, while reducing the risk from investment. The portfolio expectedporforlio a return of 0.8654%. Furthermore, the return that is provided from investment inthe 9-stock portfolio is adequate, which has helped in generating stable returns over theperiod. The portfolio created for investment is relevantly high, which could help in improvingthe level of returns from investment. On the other hand, DeFusco, R. A., McLeavey, D. W.,Pinto, J. E., Anson, M. J., & Runkle, D. E. (2015).argued that diversified portfolio created by theinvestor could only provide stable return, as it does not aim in generating high level of returnsfrom investment. Nevertheless, the returns provided by portfolio is relevantly low over theinvestment period, which indicates the investment scope of the investor.us vs china tradewar support the current state loss to covering the current state of loss include news.6. Discussing the correlation between 9 portfolio assets:Dow, Goldstein & Guembel (2017) mentioned that the correlation equation mainly allows theinvestor in detecting the actual relationship between each stock, which could adequatelydiversify the portfolio.The overall valuation of correlation (Appendix) between 9-stocks are relatively high wheresome of the stocks (Haw Par Corporation Limited & Thai Beverage Public CompanyLimited) has inverse correlation. Marc D. Stern (2003) stated the bear market that commenced in March 2000 tried theprinciple of balancing portfolios with low-correlated assets. Investors held a portfoliodiversified with low-correlating assets had prospect to benefit from returns with lesser risk.
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