FINC3017 Investments and Portfolio Management- Assignment

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Reference no: EM132397158 , Length: word count : 500

FINC3017 Investments and Portfolio Management University of Sydney Australia

Report : Factor Backtesting and Performance Measurement

You are hired as an investment analyst in an Australian systematic asset management firm. Your portfolio manager asks you to prepare a report which investigates market anomalies in the U.S. equities market. Specifically, you are to report of the existence and performance of size, value, and low-beta anomalies, and use your results from single-factor backtesting to provide guidance on the development of a new
smart beta product. Your manager directs you to structure your report in three parts and address the following points:

Part A – Overview of Market Anomalies

1. Summarise the key characteristics of the following anomalies: (i) Size; (ii) Value; and (iii) Low Beta. Your summary should include a theoretical justification of each and make reference to key academic literature.

Part B – Comparing the Size Factor in Australia and U.S.

1. Using the FTST function in Bloomberg, conduct a single-factor smart beta backtest on the Size anomaly in

a. Australia, and

b. United States of America (U.S.)

2. Use the following parameters for your backtests:

3. Using the results from your backtests, make the following performance comparisons:

a. Measure the performance of the single-factor backtest in Australia against the passive investment alternative (i.e. ASX200)

b. Measure the performance of the single-factor backtest in U.S. against the passive investment alternative (i.e. S&P500)

c. Measure the performance of the single-factor backtest in Australia against the single- factor backtest in U.S.

Part C – Value and Low Beta Factors in a U.S. Strategy

1. Using the FTST function in Bloomberg, conduct the following two single-factor smart beta backtest in the U.S. using the same parameters as in Part B-2:

a. Value anomaly

b. Low Beta anomaly

2. Using the results from your backtests in C-1, measure and discuss the performance of the Value and Low Beta single-factor backtests against the passive investment alternative (i.e. S&P500 benchmark), and against each other.

3. With reference to your Value and Low Beta single-factor smart beta backtests, propose and justify a multi-factor smart beta strategy. Discuss why it should outperform a single-factor smart beta strategy.

4. Briefly describe any limitations to your analysis that should be considered alongside your findings.

Your report should conclude with an overall summary of your results.

Reference no: EM132397158

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