Introduction
This assignment refers to shares trading and we have generated two separate portfolios for the purpose of implementing the share trading strategies. Each of the two portfolios comprises of 10 different shares and the stocks that have been selected based on the fundamental and technical analysis for both of the portfolios. The strategies that we have employed to perform the trading of the stocks is to increase the number of stocks and reduce the investment amount in all the other stocks. Between the period of 5 June 2017 to 25 August 2017, we have performed trading of the stocks for around three times.
During the first time we have investment in three stocks, in the second time we increased this number to six stocks and in the third time we included all the ten selected stocks to form the portfolio and determine the return of the final trading activity. The average return of the market over the same period is 0.20% and the trend of the market index shows that the index is going to perform better in the future months as well. After constructing and trading for the two different portfolios, the portfolio that generates the higher returns and beats the market is the fundamental analysis portfolio while the technical analysis portfolio generates low returns. The fundamental analysis portfolio has generated a holding period return of around 94%.
Portfolio Assignment Harvard Case Solution & Analysis
Literature Review
The efficient market hypothesis which is also known as the Random Walk Theory, is one of the proposition in the financial theory which states that all the current prices fully reflect the available information about the market and the value of the companies(Schwager, 2012). Thus, there is no way for an investor to earn excess profits and generate higher profits than the market returns with the publically available information. One of the most fundamental issues within Behavioral Finance is that how the prices change within the market and how such changes are taking place in a market setting(Jung, 2005).
Most of the investors choose those stocks and other securities that are currently undervalued in the market and these analysis reveals that the future value of those securities is expected to increase or those securities would generate higher returns in future period as compared to the other securities. Most of the investment managers are of the view that they can choose specific securities that have the potential to outperform the market(Fox, 2009). However, the EMH is in contrast to the views of behavioral finance and it states clearly that no strategy works in the market and all these strategies of trading in the market are not effective because the advantage that is gained by the investors does not exceeds the research and transaction costs incurred by the investors(Jung, 2005).
In the field of finance, so far there is no other economic theory such as EMH, that has solid empirical evidence and describes the discussion between the proponents and challengers. According to this theory, making a significant or negligible profit by predicting the future movement of the stocks is unlikely and difficult..............
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