FINS5542 Assignment 2

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FINS5542 Assignment 2

1. Critically evaluate, in less than 1200 words, the role of technical analysis in equity markets.

Please include appropriate references, with a reference section. Both content and writing quality are key criteria of equal importance. [30 marks]

2. In this question we will conduct a backtesting exercise for the 1998 year. For each trading day in 1998 we must graph the 99% VaR that was computed 10 trading days before and we must also graph the realised loss in the portfolio that occurs over this same period. One is required to produce two graphs. The rst graph should be the backtesting of the VaR method under normality. The second graph should be the backtesting of the VaR method under historical sim- ulation of daily changes in prices. Finally, one should interpret the ndings from both of these graphical displays, (noting presentation quality is important).

For these exercises, assume that we hold a portfolio of 10 assets, namely, aan3, aan4, aan5, aan6, aan7, aan8, aan16, aan17, aan18 and aan19 where $30,000 dollars was the value of our holdings in each of the stocks ten trading days before the rst trading day in 1998. i.e. On 17 December 1997, the value of our portfolio is $300,000. Also assume that the number of shares we hold in each of these stocks does not change over the time frame of our back-testing exercise. Finally, in computing the VaR estimates one should use the last 750 changes in prices. The data is located on the ns5542 Moodle page. See last page, for variable names.

In addition to printing out the Excel graphs, one should also print out the Ox computer code. [20 marks]

3. In this question we will conduct a backtesting exercise for a portfolio of 6 stocks for the 2020 year. For each trading day in 2020 we must graph the 99% VaR that was computed 10 trading days before and we must also graph the realised loss in the portfolio that occurs over this same period.

One is required to produce two graphs. The rst graph should be the backtesting of the VaR method under normality. The second graph should be the backtesting of the VaR method under historical sim- ulation of daily changes in prices. Finally, one should interpret the ndings from both of these graphical displays, (noting presentation quality is important).

For these exercises, assume that $500,000 dollars was the value of our holdings in each of Apple Inc, Cisco Systems Inc, Chevron Corp, Intel Corp, Coco-Cola Co and Walt Disney Co ten trading days before the rst trading day in 2020. Also assume that the number of shares we hold in each of these stocks does not change over the time frame of our back-testing exercise. Finally, in computing the VaR estimates one should use the last 800 changes in prices.

In addition to printing out the Excel graphs, one should also print out the Ox computer code. [30 marks]

Variable

Name

aan1

aan2

aan3

aan4

aan5

aan6

aan7

aan8

aan9

aan10

aan11

aan12

aan13

aan14

aan15

aan16

aan17

aan18

aan19

CISCO SYSTEMS INC

MICROSOFT CORP

INTEL CORP

TEXAS INSTRUMENTS INC SPRINT CORP

AMGEN INC

INTERPUBLIC GROUP COS INC MELLON BANK CORP WARNER LAMBERT CO

BRISTOL MYERS SQUIBB CO ENRON CORP

GENERAL ELECTRIC CO

TIME WARNER INC

EXXON CORP

DELL COMPUTER CORP

AMERICAN EXPRESS CO

SUN MICROSYSTEMS INC

CORNING INC

FORD MOTOR CO DEL