Effectiveness of Treynor-Black Strategy

In: Business and Management

Submitted By lanshusky
Words 780
Pages 4
Exercise 1: Effectiveness of Treynor-Black Strategy
At Jan. 1st, 2011, the optimal Treynor-Black portfolio is as below.

After holding the four portfolios for 36 months, the performances of the four portfolios are shown in the following tables. Wi of each portfolio represents the characteristic of the certain portfolio and M2 measures how much the portfolio outperform the market.

The results show that Portfolio 1 which has the aforementioned Treynor-Black portfolio weight distribution has the best performance. The M2 is 0.0347. Portfolio 2 has equal weights on each of the six stocks, which is unreasonable. As a result, its performance is not good, with a 0.0019 M2. Portfolio 3 has equal weights on the positive alpha stocks, which makes more sense than portfolio 2. The portfolio is better accordingly. Portfolio is 100% invested in S&P 500 Index, which is a passive portfolio. So we only use S(m)2 as a performance measurement.

Exercise 2: Analysis of Risk-Free Rate Total period | | | | Price-based | Yield-based | Mean | 0.002% | 0.130% | S.D. | 0.060% | 0.155% | Median | -0.002% | 0.019% | | | | A HPR | 0.220% | 15.604% | A HPR(annualized) | 0.022% | 1.560% | | | | AMRy(annualized) | 0.022% | 1.560% | AMRy=(∑Ri/Q)*P | | | ASDy(annualized) | 0.209% | 0.537% | ASDy=STDEV.S*(P^(1/2)) | | |

Pre-crisis years | | | | Price-based | Yield-based | Mean | -0.028% | 0.265% | S.D. | 0.044% | 0.124% | Median | -0.031% | 0.269% | | | | A HPR | -0.994% | 9.540% | A HPR(annualized) | -0.099% | 0.954% | | | | AMRy(annualized) | -0.099% | 0.954% | AMRy=(∑Ri/Q)*P | | | ASDy(annualized) | 0.151% | 0.428% | ASDy=STDEV.S*(P^(1/2)) | | |

Crisis years | | | | Price-based | Yield-based | Mean | 0.034% | 0.160% | S.D. | 0.092% | 0.160% | Median | 0.004% | 0.127%…...

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