Individual Task Based Investment Project
The fund management is considering a further diversification of the fund portfolio and contemplates the possibility of investing in some emerging markets or diversifying by adding different assets types including Fixed Income Securities, Any sector sectors Indexes, Commodities and Cash equivalent securities You are asked to analyse the optimality of such a diversification in the mean-variance framework.
Detailed problem description
Why might the fund management be interested in diversification into emerging markets? Are they right to recommend such a diversification? Answer these questions citing some empirical evidence.
Obtain monthly total return index data for the following 5 equity markets indexes, in US dollar terms, for the 5-year period from October 2016 to September 2020 , plus two financial asset indexes f your choices:
Compute the efficient frontier for (i) the first three markets and (ii) all the 7 markets considered. Assume that investors can borrow and lend at the risk free rate of interest and that they are able to take short positions. How does diversification into emerging markets or other assets affect the efficient set?
In the light of existing empirical evidence and your own findings, what are your recommendations? Should the fund expand on emerging markets, consider new assets or focus to its current strategy.
Suppose that your fund is not allowed to take short positions in any of the markets. How would such a restriction affect the conclusion you have drawn in Questions 4 and 5?
