Finance (PO 2017) Finance (PO 2017) Bachelor Seminar. Prof. Dr. Marcel Prokopczuk. Institute for Financial Markets. Winter Term 2018/2019

Transcription

1 Finance (PO 2017) Bachelor Seminar Prof. Dr. Marcel Prokopczuk Institute for Financial Markets Winter Term 2018/2019 1

2 Requirements Preparation of a seminar paper on one s own or in groups of 2 Scope: 15 resp. 20 pages Independently performed empirical / quantitative analysis Use of appropriate statistics software Pure literature research is not sufficient Presentation of seminar paper in blocked seminar 2

3 Procedure Submission preferences, until Monday, at 11:00 in office (Room 056, Building 1501) , distribution of topics Biding registration, until Friday, until 11:00 in office (Room 056, Building 1501) The working period for the seminar starts Monday, Submission of seminar papers until Thursday, at 11:00 in office (Room 056, Building 1501) The presentations of the seminar papers are expected to be in calendar week 2 or 3 of 2019 ( ) Documents (topic choice, registration form, etc.) and a guide line for writing seminar papers can be found on our homepage: Lehre Downloads 3

4 1) The Volatility Index VIX The CBOE Volatility Index (VIX) is a leading measure of market expectations of short-term volatility conveyed by S&P 500 Index (SPX) option prices. Briefly describe the idea of the VIX and analyze a trading strategy based on the VIX using dependence analyses such as correlation and linear regressions. The CBOE Volatility Index - VIX, White Paper Fernandes, M., Medeiros, M. C., & Scharth, M. (2014). Modeling and predicting the CBOE market volatility index. Journal of Banking & Finance, 40,

5 2) Risk- based Portfolio Selection Summarize different portfolio selection strategies, that take variances into account, in particular the minimum variance portfolio and the risk parity portfolio. Describe shortcomings of those models as well as advantages. Use financial data to construct portfolio formed by those methods and evaluate their performance. Markowitz, H. (1952). Portfolio Selection. Anderson, RM., Bianchi, SW. & Goldberg, LR. (2012). Will my Risk Parity Strategy Outperform? Asness, CS., Frazzini, A. & Pedersen, LH. (2012). Leverage Aversion and Risk Parity. 5

6 3) Risk Management: Value at Risk Describe the concept of Value at Risk (VaR) and different extensions (i.e. CVaR). Describe and apply different estimation methods and evaluate advantages and disadvantges of the estimation methods. Estimate the VaR and other appropriate risk metrics for different assets. Christoffersen, P.F. (2011). Elements of Financial Risk Management. Duffie, D. & Pan, J. (1997). An overview of value at risk. Hendricks, D. (1997). Evaluation of value at risk models using historical data. 6

7 4) Commodity Investment Investigate and describe co-movements between indexed & non-indexed commodities to investigate the degree of financialization of commodities. Use this tool to describe co-movements between other commodity markets and detect potential reasons for that co-movement. Tang, K. & Xiong, W. (2012). Index investment and the financialization of commodities. Le Pen, Y. & Sévi, B. (2017). Futures Trading and the Excess co-movement of Commodity Prices. 7

8 5) Forecast Investment Strategies Several economic organizations publish regularly forecasts (i.e. ZEW) first describe the forecast measures and the method. Evaluate the quality of the forecasts based on established criteria. Additionally compare the forecasts with traditional market implied measures in order to evaluate their value. Create a strategy that is based on economic forecasts and evaluate the performance of the strategy in comparison to the market and different Investment strategies. Gordon, L. & Tanner, J.E. (1991). Economic Forecast Evaluation: Profits vs. the conventional error Measures. Clemen, R.T. & Winkler, R.L. (1986). Combining Economic Forecasts. Journal of Business & Economic Statistics. Stephen, K.McNees (1978). The Rationality of Economic Forecasts. The American Economic Review, 68,

9 6) Market Anomalies Describe and review the weekend, the holiday and the turn of the month effect. Investigate and compare the anomalies in different markets and over different asset classes. Thaler, R.H. (1987). Anomalies: Weekend, Holiday, turn of the month and Intraday Effect. Journal of Economic Perspectives, Vol. 1,

10 7) Futures Markets Examine the literature on the relationship of the futures and the spot market. Empirically investigate for example the relationship between the futures and the spot market, or between volume, volatility and market depth. Bessembinder, H. & Seguin, P. (1993). Price Volatility, Trading Volume and Market Depth: Evidence from Futures Markets. Journal of Financial and Quantitative Analysis, 28, French, K. (1989). Detecting Spot Price Forecasts in Futures Prices. The Journal of Business, 59, Koutmos, G. Tucker, M. (1996). Temporal Relationships and Dynamic Interactions between Spot and Futures Stock Markets. The Journal of Futures Markets, 16,

11 8) Black-Litterman Model The Black-Litterman model allows the investor to integrate his views into the asset allocation descision. Empirically investigate the performance of the Black-Litterman model and compare it to other models. Black, F. and Litterman, R. (1990). Global portfolio optimization. Financial analysts journal, 48, 5, He, G. and Litterman, R. (1999). The intuition behind Black-Litterman model portfolios. 11

12 9) Estimating Beta Vasicek presents in his paper the theory that the classcial OLS regression might not lead to an efficient beta estimate, given the knowledge of the cross-sectional distribution of betas, thus he proposes to use this as prior information. Implement the Bayesian procedure of Vasicek for a set of stocks and compare it to classical sampling-theory estimates. Create an Investment strategy based on the new beta estimate and compare this strategy to classical sampling-theory estimates. Vasicek, O.A. (1973). A Note on Using Cross-Sectional Information in Bayesian Estimation of Security Betas. Journal of Finance, 28, Klemkosky, R.C. and Martin, J.D. (1975). The Adjustment of Beta Forecasts. Journal of Finance, 30,

13 10) Portfolio Insurance Portfolio insurance is a strategy that reduces the losses of a portfolio via hedging strategies. Describe the constant proportion portfolio insurance (CPPI) by Black and Jones (1987) and Perold (1986), that introduces a simple strategy, the investors invests a constant multiple of the cushion in the risky asset up to the borrowing limit. You can analyze this approach in detail or compare it to portfolio insurances based on option replication. Empirically evaluate the properties of the strategy and compare it to other portfolio insurance strategies. Leland, H.E. (1980). Who should buy portfolio insurance? The Journal of Finance, 35, Black, F. and Perold, A. (1992). Theory of constant proportion portfolio insurance. Journal of Economic Dynamics and Control, 16,