Jensen's Unconditional Alpha Model Case Study

This paper will assess my ability to maximize my personal return on investment with an allocation of $1,000,000. The overall goal of this exercise is to obtain the highest return possible within the next 12 months. I am limited to the following asset classes for allocation of all investments:

The extracted data used includes monthly returns from January 1972 to July 2011. The assets are selected so that the portfolio contains the largest, most liquid, and most tradable assets. The choice of such a variety of assets across several markets was used in order to generate a large cross sectional dispersion in average return. It helped to reveal new factor exposure and define a general framework of the correlated value and momentum effects in various asset classes.

In this literate review the most important papers about explaining stock returns from 1952, when Markowitz came up with Modern Portfolio Theory, till around 2011 will be discussed. As stated in Chapter 2, Jack Treynor was one of the first economists that started to work on the CAPM model. When he developed the CAPM in 1961, there was no way yet to fully test it. Because there were no samples large enough or of sufficient quality, the real testing of the CAPM started in 1970. In 1973, the world was shown the famous Black and Scholes options pricing model. One of the first studies that gave a different answer than the CAPM was the research by Basu (1977). While he agrees with the Efficient Market Hypothesis, Basu reaches another

Keown, A. J., Martin, J. D., Petty, J., & Scott, D. F. (2005). _Financial management: principles and applications_ (10th ed.). Upper Saddle River, NJ: Pearson Education, Inc..

Mutual fund has been existing for a long time, but there are still a lot of details about it are not very clear. Generally, this paper is discussing not only the overall performance of mutual funds, but also the functions of each subpart and how are they related to each other. Specifically, there are several questions been answered: how is mutual funds’ overall performance? What is the factor that affects its behaviour the most? How does each composition affect the overall performance? Will there be any differences between the actively managed funds and passively managed funds? How are mutual funds’ performance compared with other market index during the past, specifically from 1975 to 1994? How to understand the fund’s performance by looking at the correlations and so on? By studying these questions separately, a better understanding of mutual funds and their properties will be obtained.

Jegadeesh, Narasimhan , “Evidence of predictable behavior of security returns,” Journal of Finance 45, 881-898., 1990

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

The last five years’ worth of monthly returns for the Vanguard 500 Index Fund, Hasbro and R.J. Reynolds

Dimensional Fund Advisors (DFA) is an investment firm based in Santa Monica, California. It was founded in 1981 by David Booth and Rex Sinquefield. It is a different investment firm which think differently and push the frontiers of innovation. The firm had close working relationships with academics such as Eugene Fama and Kenneth French who introduced the Fama & French three factors model. Fama has worked in DFA since very early days, now he is the director of research department of DFA. He is known for his work on portfolios and asset pricing. This report is going to discuss the business strategy of DFA, issues relating to Fama & French Three Factor Model such as variables being used

Baker, M. & Wurgler, J. 2002, ‘Market Timing and Capital Structure,’ Journal of Finance, vol. 57, pp 1-32

The historic average returns from 1950 to 1996 and from 1929 to 1996 are given In Exhibit 3. We chose the latter time period as we considered it would give us a more reliable estimate of the risk-free rate by discounting both the Second World War and the Great Depression. It is necessary to evaluate the expected length of the project and utilize a risk free rate applicable for the same time period. Ameritrade is investing $100 million dollars in technology, which is considered a long-term investment, in order to become the largest brokerage firm. We consider their

§  Investment Performance is a complicated subject §  Theoretically correct measures are difficult to construct §  Different statistics or measures are appropriate for different types of investment decisions or portfolios §  Many industry and academic measures are different §  The nature of active management leads to measurement problems

For the study purpose the daily changes in performance of Mutual funds were analyzed in relation to other Mutual fund company and also to the daily volatility in the National Stock Exchange of India benchmark Index (NIFTY) and national stock exchange and Bombay national exchange

INSTRUCTORS: PROF. S.K. BARUA PROF. J.R. VARMAACADEMIC ASSOCIATE: MS. VAISHALI SATTAREPORT PREPARED BYGROUP 12MEENAKSHI DEOGAM M. SHYAMNIMISHA SAXENARAGHAV YADAVROHAN ANANDDATE OF SUBMISSION: 24TH AUGUST, 2010

Brigham, Eugene F., and Joel F. Houston. Fundamentals of Financial Management. Thomson: South-Western Publishers, Eleventh Ed. 2007.