The objective of this assignment is to invest £100,000 in UK stock market shares that are listed on FTSE ALL Share index. There will be two portfolios of shares where one will be evaluated by technical analysis and the other by fundamental analysis. …
As the report stresses diversification of investment spreads the risk over many assets. The concept of Efficient Market Hypothesis (EMH) states that since the stock prices reflect all relevant information in the market, it is not possible for the investor to beat the market by purchasing selling stocks at inflated prices or purchasing undervalued stocks. Thus, in order to beat the market the investor will have to be well informed regarding the true fundamentals of the stocks and carefully follow historical trends. Technical analysis helps and investor to predict future movement of stock prices by analysing past trends whereas fundamental analysis considers a top-down approach that analyses not only the fundamental financial position of firms but also macro-economic and industry trends.
From the essay it is clear that the efficient market hypothesis assumes that in financial markets, the current prices reflect all the information available in the market and thus the true value of the stocks can be reflected from their past security prices. The theory assumes that the market participants behave rationally and try to maximize their returns by processing all information available to them. From above it can be said that the securities are correctly priced provided the information available to public. The best strategy to beat the market is to construct and evaluate the portfolio performance using technical analysis and fundamental analysis. ...
The theory assumes that the market participants behave rationally and try to maximize their returns by processing all information available to them (Jegadeesh, and Titman, 1993, pp.65-91). From above it can be said that the securities are correctly priced provided the information available to public. Considering the above theory it can be said that EMH states it is “not” possible to beat the market since efficiency of stock market causes stock prices to reflect all relevant information. Keeping this argument in mind, the investor will have to allocate investible sum of ?50,000 in two portfolios consisting of equity shares of companies listed in FTSE All Share. The lists of companies for two portfolios are depicted in Appendix - A (See Table B.1 – List of Companies in Portfolio I and Table B.2 – List of Companies in Portfolio II). The best strategy to beat the market is to construct and evaluate the portfolio performance using technical analysis and fundamental analysis. The list of companies mentioned in the two portfolio were selected after considering various macro-economic factors such as currency movements and strengthening of Euro with respect to dollar; general investor sentiments after US Fed chairman announced gradual taper of quantitative easing; misfire of Bank of Japan’s loan support programme; and short term view of investors on junk bonds; expectation of an onset of bull market early 2014 especially in emerging markets where markets are experiencing upward trends (Financial Times, 2013). Portfolio Evaluation Fundamental Analysis Fundamental analysis aims to analyse the various macro-economic factors that might affect the performance of ...
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