Applied portfolio management Assignment PDF
Added on 2021-05-31
6 Pages1455 Words80 Views
Running Head: Applied portfolio management 1Project Report: Applied portfolio management
Applied portfolio management 2ContentsIntroduction.......................................................................................................................3Critique the Markowitz model..........................................................................................3Single index model...........................................................................................................3Scenario analysis..............................................................................................................5Conclusion........................................................................................................................5References.........................................................................................................................6
Applied portfolio management 3Introduction:Portfolio management depicts to collection of various investment tools such as instance, mutual funds, shares, stocks, budgets, bonds, cash, investor’s income etc. Portfolio management is an art of selecting the right policy of investment for the individual in order to minimize the risk and maximize the return of the portfolio. In the given report, the earlier used Markowitz model has been criticized and the portfolio of the company has been measured on the basis of single index model (MacKenzie, 2008). This report explains that how both the models are different to each other and how they impact on the overall performance of a portfolio. The better the outcome of a portfolio would be the better the investors position would be. Critique the Markowitz model:Markowitz model is a modern mathematical theory to evaluate the portfolio. Being popularly and widely used by various investment institutions, Modern portfolio theory is still subject to criticism. The assumptions of the Markowitz theory have been criticized by the researcher because of its relation with the behavioural economics. The research has proved that the assumption (Investors act rationally) is wrong (Mangram, 2013). On the other hand, the behavioural finance study explains that all the investors in the market have equal potentialreturns however in normal scenario; each investor is biased and different (Guerard, 2009). The opinion on the taxes and transaction cost also does not find true. Further, the assumption of the investors that they could but any size of investment is also not practical. Besides, investors always have a credit limit and they cannot borrow or lend unlimited shares.The critics have also challenged the idea that the investor’s action doesn’t have any influence on the market (MacKenzie, 2008). Further, the theory considers the historical data of a stock to identify the risk and return of the stock. However, experiences investors believed that the past performance of a stock cannot be a guarantee of forecasting and future performance of a stock. According to our group report, it has been evaluated that the entire above stated assumptions have been used while calculating the risk and return of the portfolio. And thus, the approach must be altered to evaluate the outcome of the portfolio. Single index model:
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