Valuation share and portfolio optimisation

Finance Essay Guide

Question:

“You are required to critically evaluate some or all of your real world trading experience on the virtual platform BullBearings (London based stocks only) from the period October 2015 – January 2016.” (2500-3000 words)

Requirements:

  • You should make a particular effort to assess the extent to which the theories of financial economics and commercial knowledge informed your trading decisions, and whether upon reflection these theories have held true when compared to your real world experience of the financial markets during this period.
  • You are strongly encouraged to seek to explain the reasons for this divergence from theory from both a commercial and theoretical perspective – providing journal based references to support your critical arguments where appropriate.
  • Such theories and models may include, (but are not limited to); Modern Portfolio Theory, CAPM, Efficient Market Hypothesis (EMH), NPV, financial ratios (e.g. P/E) and Noise Trading.
  • You are strongly encouraged to incorporate charts and data tables where appropriate – both of which will be excluded from the word count.
  • The total word count for this paper must be strictly within the bounds of 2,500 – 3,000 words excluding references, appendices, charts and data tables. Please indicate your total applicable word count at the end of your paper.

NOTE:

  • I have calculated the data to prepare for the essay by file in excel which I will attach or upload in web. All the calculation was based on the 2015 -2011 data and when comparing you should compare with data January in 2016. All data are in the past.
  • You have to use the data to write the essay and import data as evidence.
  • This essay should be written in academic style
  • I made the essay outline, hope you follow this.

 

 

 

 

 

Outline for Finance Essay

  1. Introduction
  • Purpose of this essay
  • Introduce about share/stock will be undertaken
  • Why choose these share? (categories)
  • Define the structure of essay. (there are 2 parts: valuation of stocks and portfolio optimization part)
  1. Body
  • Part 1: Valuation stock
  • Identify lesson or sample of tradable stock and share
  • Calculate whether these share are overvalued or undervalued
  • Using different methods in valuation (CAPM, P/E ratio, DDM. DVD….)
  • How are these share price when comparing in the practice?
  • Having a range of answer in theory calculation but on balance you have to justify: “is it under/overvalued?”
  • If there are differences or divergences, it proves that theories are wrong or weak. Therefore, you have to seek the reasons and explain why these divergences happened. Using the journal based reference to quote and support the critical arguments.
  • Each paragraph => “Seeking the issue -> explain by quoting reference -> counter argument.”
  • Part 2: Portfolio Optimization
  • Chose 4 out of 6 stocks to put in a portfolio investment
  • Why chose these shares? (CAPM, covariance and other personal justifications)
  • Using Modern Portfolio theory-MPT
  • You have to vary these weight in order to get the maximisation in portfolio
  • Short conclusion to summarize the part 2

NOTE: you have to show the theory underpinning in the valuation of 2 parts. In each theory, you have to make reference and research about it (the reference should be quoted from journals or high ranking finance article). Moreover, you have to input the data, tables or charts.

  1. Conclusion
  • There is a difference between the theory you study and the real world experience in order to prove that the theory is not consistent
  • From the part 1 and part 2, restate the result again
  1. Appendix

NOTE: You can put more theory, information, data, or evidence into essay, but make sure that you cover all my requirements in the essay.

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