Financial Modeling | December 11
2015
| Group Members:
Hamza Ehsan Dogar
Huzaifa Bin Ata
Maliha Siddiqui
Mohammad Saad Shahzad
Group Members:
Hamza Ehsan Dogar
Huzaifa Bin Ata
Maliha Siddiqui
Mohammad Saad Shahzad | Group Report |

Agenda 1. Have to Construct five Contrarian portfolios (Based on previous 3 years returns, accommodate those stocks which are traded at least for 30 months), report their average returns. 2. Construct zero-investment strategy. 3. Run CAPM model for this zero-investment strategy and report intercept and Beta, discuss their interpretation. 4. Find December to December returns for the KSE, Compare them with January to January returns.
Contrarian Strategy and portfolio creation
The Contrarian Strategy is based on the market anomaly commonly referred to as the reversal effect. The reversal effect states that over the long run, the stocks which had high returns will give lower returns, while the stocks which were giving lower returns will start to give higher returns. Therefore the contrarian strategy aims to capture the reversal effect, and take advantage of the losers, who start to give big returns to the investors.
To form contrarian portfolios, the following steps have to be followed: 1. Download the monthly prices for all the stocks in the market. 2. Calculate the monthly returns of all the stocks in the market. This can be achieve by using a simple code as shows below:

The logic of the code is that we put all the values of the market price in one variable and the market value of the stocks in the following month in another variable. Then the return formula is simply applied to give us the monthly returns of all stocks in the market. 3. Now we have to build our contrarian strategy. In our case we have construct portfolios based on the returns of the last 3 years, which taking into account