Part One International Portfolio Management

Part One International Portfolio Managementgo Tohttpfinanceyahoo

Part One: International Portfolio Management. Go to http://finance.yahoo.com, download monthly adjusted close prices (already adjusted for dividend and stock split) from 09/01/2014 through 09/05/2019 for the following three country indexes: USA (S&P 500 ^GSPC), India (^BSESN), and France (^FCHI). Historical T-bill rates are provided in a separate Excel file. Compute monthly holding period returns using the adjusted close prices. Use Excel functions AVERAGE and STDEV to compute the mean and standard deviation of the monthly returns for each index. Use COVAR and CORREL functions for covariance and correlation analysis. Assume that historical mean returns are good estimates of expected returns.

To achieve international diversification, John invests in the USA and India indexes. Determine the optimal weights for these two indexes in his portfolio, along with the mean and standard deviation of its returns. Similarly, Mary invests in the USA and France indexes, and establish her optimal portfolio with corresponding weights, mean, and standard deviation. Use Excel with clear labels for all calculations.

Discuss which portfolio (John’s or Mary’s) performs better, explaining the reasons behind this performance differential. Additionally, analyze potential reasons causing the differences, providing about half to one page of double-spaced discussion.

Part Two: Estimation of Beta. Download monthly adjusted close prices from 09/01/2014 through 09/05/2019 for Dynex Capital Inc. (DX) and International Paper Co. (IP). Calculate the monthly holding period returns. Using the S&P 500 (^GSPC) as the market proxy, estimate the beta coefficients of DX and IP via single-index model regressions, including regression output.

Calculate the mean return, standard deviation, and beta for two portfolios: Portfolio A (90% in ^GSPC and 10% in DX) and Portfolio B (90% in ^GSPC and 10% in IP). Show the calculations in Excel, including formulas. Based on regression results, analyze which stock has a larger proportion of firm-specific risk, explaining why. Also, evaluate if there exists an arbitrage opportunity among the securities (^GSPC, DX, IP), discussing its reliability, based on the regression outputs and the principles of arbitrage pricing theory.

All calculations, analysis, and discussions should be clearly presented in Excel and supplemented with written explanations in Word or similar formats. Use credible references and include at least five scholarly sources. Data and analysis must be organized systematically, with clear labels and detailed reporting of all results.

This project can be done individually or in groups of up to five students; ensure all group members’ names are included, and verify the accuracy of work done collectively. Submit both a hard copy and an electronic copy (via Canvas) by the deadline. Late submissions incur penalties, decreasing the maximum achievable grade proportionally, and projects submitted more than 48 hours late will receive zero credit.