BAFI3178 Portfolio Management Assessment 3

Assessment 3: Individual assessment (40 marks)

In this assessment, student is required to accomplish two tasks.

Please submit your answers/discussions to the two tasks in one combined report. You also need to submit the calculation process in spreadsheet or any other statistic software for Task 1.

Task 1 (20 marks)

You have been inspired by Fama and French factors and also know that small stocks have a reputation for outperforming the market. You are interested in evaluating how size may influence stock return. Use the data from “Australian Stock market data” to:

• In January each year, based on the market capitalization by the previous year end, build two value-weighted portfolios, consisting of the smallest firms (Bottom ten percentile) and the largest firms (Top ten percentile), respectively. Estimate the two portfolios’ volatility, mean return and market beta between 2011 and 2020. Was one portfolio’s performance better than the other? Prepare tables and graphs showing your results. Market return is proxied by ASX200 index.

(10 marks)

• How did the two portfolios’ volatilities and returns compare to the market average?

(5 marks)

• If you conduct a long-short strategy (long the small portfolio and short selling the large portfolio), how did this strategy perform over 2011-2020?

(5 marks)

(Total=20 marks)

Students are required to prepare tables, graphs and the spreadsheet for the calculation. Student is allowed to have up to 1-page Appendix.

Task 2 (20 marks)

Case study of The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (“The Royal Commission”)

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, also known as the Banking Royal Commission and the Hayne Royal Commission, was a royal commission established on 14 December 2017 by the Australian government pursuant to the Royal Commissions Act 1902 to inquire into and report on misconduct in the banking, superannuation, and financial services industry. The establishment of the commission followed revelations in the media of a culture of greed within several Australian financial institutions. A subsequent parliamentary inquiry recommended a royal commission, noting the lack of regulatory intervention by the relevant government authorities, and later revelations that financial institutions were involved in money laundering for drug syndicates, turned a blind eye to terrorism financing, and ignored statutory reporting responsibilities and impropriety in foreign exchange trading.

Do the research and write a report to discuss the following.  Students are required to collect industrial data, academic literature, examples and other relevant information to initiate their own analysis and form a summary of up to 1,500 words limit. Student is allowed to have up to 3-page Appendix, appendix and reference list are not included in the words limit.

• What types of financial institutions are involved in The Royal Commission?

(5 marks)

• What are the possible misconducts having the financial institutions been involved in The Royal Commission?

(List at least three and give your explanation, 7 marks)

• Take AMP Limited as an example, any suggestions you want to provide to financial planning and wealth management companies, to build/resort their trust?

(8 marks)

(Total=20 marks)