FINM7403 Cash Flow Duration Strategy Report
- Subject Code :
FINM7403
- University :
University of Queensland Exam Question Bank is not sponsored or endorsed by this college or university.
- Country :
Australia
Assignment Overview
This is an individual assignment total of 30 marks counting towards 30% of your final grade. Assignment due: 8th May 2023 15:00. Submit electronically on Blackboard and Turnitin.
Cash Flow Duration Strategy – Performance Evaluation (30 marks)
Goncalves (2021) proposes an active equity trading strategy – buy short-duration firms and sell long duration firms. You are required to evaluate the performances of ten portfolios formed on cash flow duration as well as the long-short SML strategy (buy the shortest-duration and sell the longest-duration firms) portfolio from July 1973 to June 2018.
You will need to download the data “data.zip” from the Assignment Folder.1 Complete the following tasks using value-weighted portfolio returns from July 1973 to June 2018.
- Report average excess returns over the Treasury bill rate, volatility, Sharpe ratios, and alphas from CAPM and Fama-French 3-factor models for all duration portfolios including the long-short portfolios SML.
- Is the SML strategy (buy short-duration firms and sell long-duration firms) profitable? Your answer should depend on several performance evaluation metrics learned in the course. For factor risk-adjusted returns, use CAPM and Fama-French factors.
- Do you think the SML profitability comes from risk or from mispricing? Your arguments/reasonings/discussions should demonstrate your understanding of academic and/or industry research.
