Question One /30/

Exhibit (i) and Exhibit (ii) demonstrate the performance of two monthly-rebalanced portfolios of opposite investment styles over the period from 1 January 2004 to 31 December 2013. The first portfolio is comprised of the 20 stocks with the highest book value-to-market ratio (BVTM); and the second portfolio is comprised of the 20 stocks with the lowest BVTM on the JSE.

Required:

(a) Compute the Sharpe Ratio and Treynor Measure for Portfolio A and Portfolio B respectively. [8]

(b) Provide a detailed analysis on the statistical interpretation for each of the two portfolios in exhibit (ii). [16]

(c) Based on your findings in part (b) above, provide a summative analysis to conclude whether the merits of portfolio A and B represents reward to known value and size risk factors (Analysis and significance of the coefficients of SMB and HML). [6]

	ALSI	Portfolio A	Portfolio B	Treasury Yield
Return	17.62%	23.36%	37.04%	7.41%
Std. Deviation	16.25%	17.37%	15.52%	0.00%
Beta Coefficient	1.00	0.69	0.64	0.00
Sharpe Ratio	0.628	???	???	----------
Treynor Measure	0.102	???	???

	Portfolio A	Portfolio B
R Square Adjusted R Square p-value (regression)	79.93% 79.23% 0.00	77.44% 76.66% 0.00
Intercept t-stats p-value	0.000 0.313 0.76	0.007 3.241 0.00
b_MRP t-stats p-value	0.900 18.466 0.00	0.817 17.629 0.00
b_HML t-stats p-value	0.653 8.432 0.00	-0.484 -6.579 0.00
b_SMB t-stats p-value	0.549 9.659 0.00	0.608 11.234 0.00