Instructions on Assessment:
It is assumed that five years ago you read an article by French (2008)1 and the findings of the paper related to
extra cost associated with active investment motivated you to construct a passive portfolio of equities. You
then had inherited 1,000,000 cash in your local currency (i.e. Β£1,000,000 for UK campus students,
HK$1,000,000 for HK campus students and Qatari Riyal 1,000,000 for Qatar campus students) and you could
make such decisions as: how much to invest, in which equity(ies) and any specific criteria for selection of
equities you wanted to follow.
This year, as a student in the investment management course, you have the opportunity and time to invest
actively. Starting from teaching week 3 of semester one, you are required to invest the money you realised
from passive investment in an active manner for which you have decided to make a thorough economic
environment analysis and forecasting including a reassessment of your risk tolerance and investment
objectives. (In the case that all your investment from the passive portfolio has lost its value, you can borrow at
5% per annum interest rate but only such amount to give you a total of 1000,000 in your local currency at the
start of
week 3 i.e. if in week 3 the value of your passive portfolio is above 1000,000, you wonΒt be allowed to
borrow additional funds). Note the following information for all new trades:
Week 3
The active trading starts in week 3 of Semester 1 and you should close and realise the value of your investment
in week 12 i.e. you have a total of 10 weeks for active trading. Similar to the passive portfolio, in this period
again, you are required to build and manage investment portfolio of equities. The following trading rules apply:
No use of futures or options, no short sales, no gearing and no exchange traded funds, no investment in bonds.
Week 3 to 12 (10 week period)
During the portfolio management period (week 3 to 12), you are required to rebalance your portfolio to achieve
your investment objectives. At the end of Week 12, you should close your portfolio and carry out the final
valuation.
Your objective (for both active and passive portfolios) is to outperform the relevant performance benchmark(s)
on a risk-adjusted basis. For UK campus students, your suggested benchmark is a portfolio with 100% invested
1 French, K. R. (2008). Presidential address: The cost of active investing. The Journal of Finance, 63(4), 1537-1573.