Strategy of International BUSINESS Custom Research Paper Help
small RESEARCH PROJECT: BUS_633 Statistics and Quantitative Methods for Finance , October-November 2015 NBAD_MFIN Theme: Critical Thinking and Quantitative Reasoning applied in the study of a security As a financial analyst or investors advisor you selected a stock from a capital market and you have to explain to your client why to buy or not this particular security, based on the expected returns and the risk of the security. Several questions then may arise in the mind of the client: Why this particular stock? What are the expected return and risk characteristics of this security? Given the cost of money in the economy is currently 1.85% what is the excess return of the stock? What are the above characteristics as compared as with the market index? What is the sensitivity of this stock in market s changes (that is the beta factor of the stock)? How large is the company s risk (or specific risk of the stock)? What is the percentage of returns changes due to the market movements? and many other questions that will be deployed in the course of Modern Portfolio Management (or Investments). In order to be as accurate as possible your analysis should include several steps in two Parts. PART (A) Thus, the first step is to have a graphical representation of the stock price and see if this is a stable process or not. For example, to identify trends or periods of tranquility, structural breaks, trend reversals etc. To complete your discussion with the graph (remember that sometimes a picture paints a thousand words ) you may plot a moving average (or two, one short and one long), and apply the crossover Rule for buy and sell signals. At least you will get an information of the current position of the security s price in comparison with its moving average. The second step is to perform some calculation in order to approximate the distributional properties of the returns (Attention! All your calculations hereafter are based on returns series; not the raw data. WHY?). The third step is to infer if these characteristics- calculated in step 2- are stable over time. An idea is to divide your sample in to sub-samples and perform the same calculations and comments (i) for the whole period, (ii) for the first sub-period, (iii) for the third sub-period. Usually, we divide in two parts our time series. The ideal would be if the division of the whole period is not arbitrary but based on some event (political elections, some major regulatory event, war, structural change, a monetary action from the central bank (of the country or the Fed from USA or the European Central Bank it depends of the event and the purpose of the study) etc) or other criteria (mathematical or econometric such as restrictions on the parameters value etc). This part is useful and meaningful if you perform hypothesis testing. For example, you might like to test if the mean returns over the two sub-periods are the same. That means to test if their difference is statistically significant or not. The same question you may ask for the risk (standard deviation) of the security or its volatility (variance). {Hint: Make sure that you understand the slight difference between risk and volatility; visit:
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