Optimal Portfolio Structure – Designing a Growth and Risk Balanced Portfolio of U.S. Bank Stocks: Predictive Modelling Through Monte Carlo Simulation

Dederichs, Julian (2016) Optimal Portfolio Structure – Designing a Growth and Risk Balanced Portfolio of U.S. Bank Stocks: Predictive Modelling Through Monte Carlo Simulation. [Dissertation (University of Nottingham only)]

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Abstract

Because of the global financial crisis in 2007 -2008 and the consequences of their misconduct, many financial institutions experienced a steady decrease in their financial performance. Their poor performance also translated into a decrease in many of their stock performances wherefore many financial institutions’ stocks currently trade way below their book value – some of which have reached their 20-year’s low. However, as banks’ business environment and financial performance improves again many analysts and industry experts argue that there exists a very good opportunity for investments into banks and financial institutions in general.

Therefore, this dissertation aims on answering the question if there is a possibility to create an investment portfolio only consisting of bank stocks. Furthermore, it examines whether the portfolio composition could have an effect of its performance and if there is one portfolio that would offer an optimal return to risk trade-off.

For the purpose of this dissertation stock prices of 15 banks listed on the Standard & Poor’s 500 Index have been considered for the period of 2014-2015. Furthermore, a Monte Carlo Simulation is employed in order to expand this analysis for a future period of 250 days. This involves a simulation of future stock prices as well as future portfolio performances.

The results have shown that there exists the potential to diversify a bank share only portfolio because banks operate under different business models. This potential could be further supported as bank shares are not perfectly positive correlated of which some are even negatively correlated. Finally, the composition of a chosen portfolio shows an impact on its performance.

Item Type: Dissertation (University of Nottingham only)
Keywords: Optimal Portfolio, U.S. Bank Stocks, Portfolio Management
Depositing User: Dederichs, Julian
Date Deposited: 09 Mar 2017 15:43
Last Modified: 19 Mar 2017 21:17
URI: http://eprints.nottingham.ac.uk/id/eprint/36498

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