Share Trading Assignment
Student no. 497432
Unit Code U21083
Due Date 19/02/2013
This project is about whether or not an investor with only publicly available information is able to “beat the market”. We have £100,000 which we can invest in the stock market however this amount must be split into two portfolios. Each portfolio will be made up of investments chosen through theories and strategies which come from either the fundamental analysis or technical analysis approaches.
Fundamental analysis is method which looks at fundamental information such as competitive advantage, earnings growth, market share and quality of management to indicate a security’s future value.
Technical analysis is the other basic trading …show more content…
This method was set out in a study by Griffin, Ji and Martin (2003) where they found that in an economic decline, price momentum strategies earned positive returns in 35 out of 40 markets. Campbell, Lo and MacKinlay also found that “there is a shorter-run weak tendency toward momentum, for stock prices to continue moving in the same direction". A security in the technical analysis portfolio which is an example of this strategy is Topps Tiles PLC. Topps Tiles PLC show a steady increase in share price between May and October which, assuming this strategy is effective, should continue rising over the next months.
For the second technical analysis method, firms were selected on the basis of the Small Firm Effect. A study by Stoll & Whaley (1983) showed that “investors can earn risk-adjusted excess returns after transaction costs by holding small firms for relatively short holding periods.” Also, the results of research done by Banz (1981) showed that “in the period from 1936-1975; the common stock of small firms had, on average, higher risk-adjusted returns than the common stock of large firms”. As the securities will only be held and sold over a maximum period of four months this method should be able to make positive returns through this method based on these results. To