Question
Please complete your answers in this excel workbook: Answer_File_(V2_2022).xlsm. Once you have finished your answers, upload your solutions to Canvas to be marked. In the
Please complete your answers in this excel workbook: Answer_File_(V2_2022).xlsm. Once you have finished your answers, upload your solutions to Canvas to be marked. In the worksheets Prices, Price-to-Book Values, and Number of Shares, you can find monthly share prices, price-to-book values, and number of shares outstanding during a 8-year period for a group of NZ stocks, respectively. Please note that the values of Number of Shares are downloaded from Refinitiv in units of thousand shares. In this assignment, students are asked to build a model to compare the performance between the value and momentum investing strategies for an equity portfolio. Assume that the initial amount invested in this portfolio is $1,000,000. The model should allow the user to conduct an analysis of comparing their profitability and decide which strategy to implement. These two strategies considered are described as follows. 1. In this assignment, we can implement value strategy in three steps. First, we need to identify value and growth stocks for each month. The value stocks are those with the price-to-book ratios lower than the 20th percentile of this ratio among all the companies in the sample this month, and grow stocks are those with the price-to-book ratios higher than the 80th percentile, respectively. Second, we can build a portfolio that buys the value stocks and sells the growth stocks at the end of each month. Third, we need to rebalance our portfolio monthly, i.e. each month we should update the value stocks that we are buying and the growth stocks that we are selling. 2. Similarly, we can implement momentum in four steps. First, for each month and each stock, we compute the average return over the last 12 months, excluding the most recent month. Second, we can identify good and bad performers each month, based on this average turn during the previous 11 months, i.e. months [-12,-2]. Specifically, in this assignment, we identify good performers as those with the average returns higher than the 80th percentile of this return of all the companies in the sample this month, and bad performers as those with the average returns lower than 20th percentile, respectively. Third, we can build a portfolio that buys the good performers and sells the bad performers. Last, we need to rebalance our portfolio monthly, i.e. each month we should update the good performers that we are buying and the bad performers that we are selling. 3. For each strategy, we need to compute the monthly value-weighted returns of our portfolio, and the total return of the portfolio over the full sample period. As an output,
the model should show the portfolio value at the end of the period and give a graphical representation of the portfolio value on a monthly basis over the 8-year period. 4. Model should contain a summary page that brings together key inputs and key outputs, including the conclusion and recommendation based on the results. The model should conform to the rules of good financial model design.
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