HW 2
You have the option to complete this assignment either individually or in a group with a maximum of 4
members. Due on April 12 (at 11pm)
Problem 1
Step 1. Download the equal-weighted 30 industry monthly returns from the Fama-French website.
Step 2. Keep the monthly observations from both datasets between 1963.07 and 2022.07 and prepare the
outputs in csv format for the following MATLAB program..
Step 3. Run the MATLAB program HW2_MVP.m and complete the rest of problems.
1. What is the blue hyperbola in the generated figure?
2. Find the minimum variance portfolio (MVP). Report
[1] The weights associated with the MVP.
[2] The mean and the standard deviation of the MVP.
[3] Mark MVP on the figure with a “red” dot.
[4] Highlight the efficient frontier from the portfolio frontier?
[5] What do the negative weights mean in the MVP?
2. Suppose that a group of investors will not invest in stocks in the “coal”, “Oil”, “Smoke”, and “Utility”
industries. Let’s call them Green Investors.
[1] Plot the portfolio frontier both regular and Green Investors in the same figure.
[2] If the financial return is the only objective, which group of investors will have an advantage and
justify your answers.
Problem 2
Consider a scenario in which a securities regulatory agency, such as the China Security Regulatory
Commission (CSRC), conducts an annual assessment of the systemic importance of a set of supervised
institutional mutual funds. Suppose that the allocations of regulatory resources are determined each year
based on the systemic risk of these funds. Your task is to rank the importance of these funds based on the
network theory. This assessment involves establishing a financial network by analyzing the common
investments held by 30 funds on an annual basis.
Amend HW2_network_PropCSRC.sas and HW2_Network.m program posted on Canvas to complete this
assignment. You are free to use any program of your choice. However, you need to download the
following datasets from WRDS manually. The following datasets are accessible directly via SAS Studio
through WRDS:
CSMAR.Fund_Maininfo [Fund information at inception]
CSMAR.Fund_Portfolio_Stock [Funds' holdings (stocks only)]
CSMAR.csmar_t_year [Annual stock information]
CSMAR.csmar_t_co [Stock information]
Complete the following questions using fund_e.csv generated by HW2_network_PropCSRC.sas. and
HW2_Network.m
[1] Illustrate the fund connections through their common holdings over the sample period (e.g., draw 7
graphs based on the 30 x 30 relation matrices for year 2016 through 2022)
[2] Rank the importance of these 30 funds each year based on their eigenvector centralities.
[3] Plot the ratios between the largest and the second largest eigenvalues over the sample period.
Comment on your observations based on the graphs generated in question 1 and these ratios.