Empirical Research Project of Fund
Empirical Research Project of Fund
You will be asked to conduct an empirical analysis of a fund of your choice. The project will involve data collection and original data analysis. Below are some project logistics and further below the instructions for the project.
Deliverables: You are to deliver a paper (details specified below) and a neatly formatted Excel spreadsheet with empirical analysis and calculations. The paper however should be self- contained (already including any charts and tables you would like me to see) and should not be referring the reader to the Excel spreadsheet.
To start, give an overview of the fund you selected and the markets it operates in. For example, you can describe the fund’s investment style (value or growth, small cap or large cap, etc.). Are there any regulatory issues one should be aware of when investing in this fund? What is its fee structure? Which asset classes, sectors, and markets does it invest in? Who are the target investors? Also provide information on the fund’s management. Identify the peer universe for your fund (comparable funds) and the appropriate benchmark index or indexes. After that, address the following empirical questions:
Plot the cumulative monthly returns of your fund vs. its benchmark index and a few of its peers.
Given historical returns of your fund, analyze its risk and return characteristics both in absolute terms and relative to benchmark indices over the entire sample (you can do this by computing summary statistics such as mean and standard deviation, maximum and minimum returns over the sample). Present your data on an annualized basis.
Redo the analysis for different market conditions (over corresponding subsamples of your original sample), i.e. study the fund’s relative performance in up, down, volatile market conditions. How does your fund perform in the time of crisis? Could that outperformance or underperformance be due to a particular aspect of its investment strategy?
Provide correlation matrix vs major market indexes, such as stocks, bonds, currencies, commodities, credit, etc. Does your fund perform better when the returns are more of less dispersed among various asset classes and sectors?
How would you define a good stock picker’s market vs. a more difficult market for stock pickers? Investigate empirically how your fund has performed in such circumstances.
Conduct an event study empirical analysis (based on an important event affecting your fund).
What is the fund’s alpha based on the Fama-French 3 factor model?
How has the indexation movement affected the performance of your fund and the
markets it invests in? Is the index movement creating any inefficiencies in the markets that could be exploited by your fund’s manager? Is it affecting the pricing of securities your fund invests in – if so, how? Is it affecting ownership concentration (who are the owners of the funds)? Do you think that indexation movement will reverse course in the near future?
Conclude by specifying whether investing in this fund would be a good choice. The answer could depend on the type of investor or the investor’s overall portfolio. What risks do you see for your fund in the near future?
Paper formatting recommendations:
1. The title page should have the title, the name of the authors in alphabetical order by last name, and in which section each author is registered. It should also be dated with the date you hand the paper in to me.
The next page should be a one-page executive summary of what your paper says. Use whatever spacing is appropriate.
The text of your paper should take about 10 pages, not including any tables or graphs. Try not to make it too much longer, unless each page is a gem. Please use page numbers; the first page of the text should be page 1. All remaining pages should have page numbers, preferably in the center of the bottom of the page.
The font should be around 12 or 11 point, like this font here, Times New Roman 12 point. You can use another font if you like, but please choose one that is equally as easy to read and around the same size. (Please do not choose 10 point for your paper – it is very small.)
The paper should be double-spaced. You can try one-and-one half spaced if really needed, but double-spaced is better.
Use usual margins (about 1 inch all around).
Please use footnotes, not endnotes. Footnotes should be in a smaller font, like 10 point. Please use single spacing for your footnotes
8. You can put as many exhibits, tables or graphs either in the text of the paper as you refer to them(preferred option) or at the end of the paper. I will not count these towards the total number of pages.
Don’t forget to put in a conclusion section to summarize your paper.
Make sure that you have a REFERENCES section at the end of your paper (after the conclusion, but before the exhibits, tables or graphs). This section should have a complete list of every reference used to write the paper (especially those mentioned in the footnotes). This section does not count toward the total number of pages.