Security Market Analysis, Risk Analysis and Portfolio Analysis

2 tasks in 2500 words, excluding excel calculations and bibliography (Harvard Referencing System): Task 1: Using the data provided apply the following tests on any two of the indices (except Britain which is used for demonstration purposes). a. Auto and serial correlation b. Runs test c. The Distribution of Returns d. Using the result gained from the above tests discuss your results with reference to the Efficient Market Hypothesis (EMH). For example, consider the following questions ➢ Does the data supplied support any alternative explanation for investor behaviour in the chosen markets? ➢ Does the data give any indication of financial the crisis in 2008? ➢ Does the data give any indication of the ‘bottom’ of the stock market collapse? ➢ Can the data be used for any technical system which might enable investors to profitably ‘play’ the market? Note: The data provided concerns the period Jan, 2008 to Jan, 2013 and covers the financial crisis. The data is sourced from the financial database and students should feel free to extend the range of the two chosen indices if it is thought that this would help the analysis. Task 2: Portfolio Optimization and Performance Evaluation Use your own data to accomplish the following portfolio optimization and performance evaluation tasks: a) Select 10 stocks from Banking, Airline, Retail Supermarkets, Telecom Communications and Energy industry listing on the London Stock Exchange Market. You are expected to choose 2 stocks from each of the industries and for all the calculation you should use monthly return ranging from Jan, 2007 to Dec, 2011. b) Construct the portfolio efficient frontiers for the 10 assets with and without short-selling restriction by using Excel Solver. Please comment on the difference between the shapes of the efficient frontiers and give your explanations. c) Plot and compare the optimal weights of the portfolio held in the 10 individual assets with and without short-selling restriction. Please comment on your findings. d) Restructure your portfolio by optimally combining a risk-free asset with the 10 risky assets. You are required to construct the portfolio efficient frontier with and without short-sale limitation; identify and briefly comment on the tangent portfolios sitting on the efficient frontiers. e) Please evaluate the tangent portfolios by comparing with the FTSE-All Share Index by using the risk-adjusted indices: Sharpe-ratio, Modigliani and Modigliani measurement and Jensen’s Alpha. Critically discuss the outcomes of portfolio diversification; please identify the limitations of the techniques implemented, and your analysis. f) Explain the relationship between the Capital Market Line and the Capital Asset Pricing Model (CAPM). Derive the CAPM and carefully examine the extensions and limitations of the CAPM model. I´LL PROVIDE YOU WITH A SAMPLE OF THE WRITTEN WORK AND A SAMPLE OF THE EXCEL CALCULATIONS