Portfolio Theory And Its Application

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FINC 6009 Portfolio Theory & Its Application Group Assignment Dr Hamish Malloch Cross Streams Zhe Yan 430462009 Table of Contents Executive Summary Justification of Data Section One: Portfolio Constructions Section Two: Empirical Results and Discussion Section Three: Fama-French Model Section Four: Regression Analysis Section Five: Re-consideration of Smart Beta Strategy and Conclusion Executive Summary Recent years have seen the rapid development of indexing investment. As an increasing number of investors have been aware of the superior returns of the alternative strategies, many new smart betas are created. This paper uses the 30 stocks from Dow Jones Industrial Average Index to build seven portfolios. One of the portfolios is based on traditional market capitalization which is regarded as the benchmark, the other six portfolios are all based on alternative strategies. The objective of this paper is to compare the performance of cap-weighted portfolio with non-cap-weighted portfolio and an in-depth analysis will be presented in the light of identifying the source of the performance of each portfolio using the Fama-French model. Justification of Data Sources of Data All the portfolios are constructed by 30 stocks which are from the Dow Jones Industrial Average Index. These are all large and world famous companies listed in the United Stated. The adjusted closing price is used in this paper as it takes dividends and stock
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