Economics Homework Help

The Basics:

Each student will begin with a cash balance of $100,000 to create a portfolio. The portion of the portfolio held as cash will only earn an annual interest rate of 1%. The game will begin on Thursday, July 29, 2021, and end at market close on Friday, August 27, 2021 (basically, you are a “Robinhood-style day trader”). Trades can only be made when the market is open Monday through Friday on non-Federal holidays from 9:30am to 4:00pm EST (the market closes at 1:00pm PST). You are encouraged to make trades throughout the term. However, you are required to make at least five purchases by Tuesday, August 3, 2021.

As a reference point, on the first day of class I will invest in a portfolio comprised entirely of an ETF (Exchange Traded Fund) that tracks the S&P 500, a broad market index. This is often used to approximate investing in the market as a whole. I will only hold this ETF (ticker symbol is SPY) and will not make any trades for the remainder of quarter. This will serve to show the ease and value of passive investing while providing a market return benchmark for your portfolio. Investopedia also provides rankings of the value of students’ portfolios under the Rankings tab (We’ll check it a couple of times in class).

Also, keep in mind that this is a short term exercise to get you familiar with trading in the stock market. Typically, investing in the stock market is done with a MUCH longer-term horizon. Therefore, factors that contribute to your success, or lack thereof (Hey, the market might go down this quarter!), in this project, may not have the same effect in a longer horizon. Remember, the write-up presents an opportunity to show what you have learned in the class.

Requirements:

At a minimum, you must make at least 10 trades (each purchase or sale is one trade), two of which must be ETFs – one ETF that tracks equities (stocks) and one that tracks bonds (two ETFs that meet this criteria must be in your portfolio at all times). It is preferable that you will continue to make trades throughout the quarter based on any concepts discussed and what you here on the news, etc.

By the last day of the quarter, Saturday, August 28, 2021, you’ll need to hand in a typed overview (2-3 pages, not including your trading history) of the project. As a guide, the write up should include most of the following topics (you don’t have to include all of them…the list below serves as a reference):   

• Why you chose at least 3 of the investments you picked, two of which must be the required ETFs, with a discussion of what an ETF is (in your own words). Be sure to include the ETFs you chose, why you chose them, and what they track with at least three example companies for each.
• Based on a portfolio comprised entirely of only your investments in the two required ETFs, calculate the weight of each, the return of each, and the weighted return for the imagined portfolio. What would your return have been if you had invested 60% in the equity ETF and 40% in the bond ETF? How do these calculated returns compare with the return you actually earned?
• Use Yahoo Finance or a similar source to research and report the estimated Beta for one of your stocks. How did this stock’s performance compare to the market? Did this match the direction and magnitude predicted by the stock’s beta?
• What is the weight of each asset held in your final portfolio? Based on these weights and reported betas, what is the beta of your portfolio?
• How did your equity ETF perform compared to your bond ETF? Is this what you expected? What contributed to this difference?
• A discussion of the diversification and risk of your portfolio. Was your portfolio adequately diversified? How and among what ways?
• A discussion of the performance of your portfolio and how your portfolio’s trading strategy and resulting performance compared to the market (Instructor’s portfolio) and how it would differ in the long run.
• What you are glad you did and what you wish you would have done differently
• What you learned and any other concepts from the course you believe are relevant to the discussion
• A copy of your trading history. This is required.