Name: Kashfee Habib

Id: 1620925
Subject: FIN542E (Investment and Portfolio Management)
Submitted to : Dr. Prof. K M Zahidul Islam
Answer: 6
 Serial Correlation test: Serial correlation, also known as autocorrelation, describes the
relationship between observations on the same variable over different periods of time. This
is different from traditional correlation, which compares multiple variables over one period
of time. Technical analysts and investors use serial correlation to measure how well past
price movements can predict future movements for the same asset, a crucial concept in
technical stock market analysis. Because serial correlation is largely dependent on the time
interval used, common examples of serial correlation are difficult to qualify. serial
correlation is a function of mean and variance; it can never be absolute and relies heavily
on circumstance and interpretation. Even if there was 100% positive correlation, or mean
aversion, or 100% negative correlation, or mean reverting, between an asset's price action
over time, there is still no law dictating any such correlation must continue. Countless
studies have been performed by financial analysts and econometricians to discover serial
correlation among price changes in markets, stocks or portfolios, but these have generally
yielded insignificant insights.
 Run test: A statistical procedure that examines whether a string of data is occurring
randomly given a specific distribution. The runs test analyzes the occurrence of similar
events that are separated by events that are different. The runs test model is important in
determining whether an outcome of a trial is truly random, especially in cases where
random versus sequential data has implications for subsequent theories and analysis.
 Filter test: A trading strategy where technical analysts set rules for when to buy and sell
investments, based on percentage changes in price from previous lows and highs.
The filter rule is based on a certainty in price momentum, or the belief that rising prices
tend to continue to rise and falling prices tend to continue to fall. It is often considered a
subjective screener, due to it being set by an analyst's own interpretation of a stock's
historical price history.
 Residual Analysis: A residual value analysis is a projection of the hypothetical sale value
of the project at some point in the future, usually the due date of the debt. Investors typically
want to know if it is reasonable to assume that the debt can be paid off when it comes due.
They also want to decide whether the debt will be characterized as debt for tax purposes or
if it may be designated as something else, like equity or a grant. It must be remembered
that residual analysis deals with the difference between actual and expected returns; the
lack of excess returns would validate the semi strong form of EMH.
Answer 8:

Technical analysis and fundamental analysis are the two main schools of thought when it comes
to analyzing the financial markets. Technical analysis looks at the price movement of a security
and uses this data to predict future price movements. Fundamental analysis instead looks at
economic and financial factors that influence a business.
Technical analysts typically begin their analysis with charts, while fundamental analysts start with
a company’s financial statements.

Fundamental analysts try to determine a company’s value by looking at its income statement,
balance sheet, and cash flow statement. In financial terms, the analyst tries to measure a company’s
intrinsic value by discounting the value of future projected cash flows to a net present value. A
stock price that trades below a company’s intrinsic value is considered a good investment
opportunity and vice versa.

Technical analysts believe that there’s no reason to analyze a company’s financial statements since
the stock price already includes all relevant information. Instead, the analyst focuses on analyzing
the stock chart itself for hints into where the price may be headed.

Fundamental analysis takes a long-term approach to investing compared to the short-term

approach taken by technical analysis. While stock charts can be delimited in weeks, days, or even
minutes, fundamental analysis often looks at data over multiple quarters or years.

Fundamentally-focused investors often wait a long time before a company’s intrinsic value is
reflected in the market. For example, value investors assume that the market is mispricing a
security over the short-term, but that the price of the stock will correct itself over the long run.
This “long run” can represent a timeframe as long as several years, in some cases.

Fundamentally-focused investors also rely on financial statements that are filed quarterly, as well
as changes in earnings per share that don’t emerge on a daily basis like price and volume
information. After all, a company can’t implement sweeping changes overnight and it takes time
to create new products, marketing campaigns, and other strategies to turn around or improve a
business. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is
because the data they use to analyze a stock is generated much more slowly than the price and
volume data used by technical analysts.

Technical analysis and fundamental analysis have different goals in mind. Technical analysts try
to identify many short- to medium-term trades where they can flip a stock, while fundamental
analysts try to make long-term investments in a stock’s underlying business. A good way to
conceptualize the difference is to compare it to someone buying a home to flip versus someone
that’s buying a home to live in for years to come.

Answer 9:
Excess returns are investment returns from a security or portfolio that exceed the riskless rate on
a security generally perceived to be risk free, such as a certificate of deposit or a government-
issued bond. Additionally, the concept of excess returns may also be applied to returns that
exceed a particular benchmark or index with a similar level of risk. It is next to impossible to
generate excess returns on a consistent basis over the long term, as a result of which, most fund
managers underperform the benchmark index over time. Additionally, active funds often come with
higher fees that can negate a portion of the gains experienced by the investor.