Investment Group Project

Course Practical Investment Group Project

Financial Institutions Spring 2018

1 General description

The goal of the project is to design a simple investment strategy using only stocks or ETFs in order to invest in the financial sector. You can also invest in insurance companies or mutual funds specializing in the financial sector. Each group starts with one million dollars of investment capital.

2 Deliverables

The main objective is to make as much money as possible within a given amount of risk. The deliver- able is therefore quite simple. It is a one-page summary containing:

3 3.1

A short but clear and simple explanation of the strategy. The description should include the eco- nomic rational or the trading opportunity (if there is no economic rational behind the strategy). In all cases, it should be clear enough for you to risk your investment capital.

The equity curve of the strategy showing the daily P&L evolution as a function of time. Here the time is in days you are investing your money. So everyday you need to show how much money you made or lost.

The performance of the strategy showing the total gain in dollars and in percentage and the maximum drawdown during the investment period.

Investment strategy Investment universe

The investment universe is all the bank stocks that you can tarde from the US using publicly available data sources such as Yahoo or Google finance. You can also use ETFs, such as XLF which is the financial sector S&P 500 ETF. As stated previously, you can also invest in insurance companies or financial sector specialist mutual funds. This is a plain vanilla investment strategy. Therefore we will not use derivatives such as options or futures.

Where business is taught with humanity in mind Fixed-Income 1/2

3.2 Investment time-frame

The time-frame of the investment is only during the second half of the class, until the end of week 8. Therefore, your investment time-horizon is just 4 weeks. It might seem a short time, but in reality, it is way more than the time an average person spends looking for investments opportunities.

4 Risk management

The only guideline for investing in this project is to control your risk. You are not allowed to lose more than 5% of the initial investment or $70,000. Therefore you will be stopped out if at any moment your investment capital hits $930,000 or less. In other words, the investor in your strategy is not willing to lose more than $70,000 in that strategy. Other than this constraint, you are free to invest in whatever way that seem reasonable to you.

5 Execution cost

We will assume that one pays $0.005 per share each way, on the long and on the short side. We will also assume that there is enough liquidity in the market for the strategy to go short at any moment.

6 Conclusion

In summary, we are looking to be active in the financial markets and to follow every day the financial sector. This will allow us to be more involved in the real dynamic of the markets and be in the flow of news affecting the finance industry. In turn, the investment strategy will make the course more real and exciting.

Investment Group Project