AD 517 Investment Analysis and Portfolio Management
Spring 2015
Virtual Stock Exchange
Portfolio Management Project
Purpose
The purpose of using Virtual Stock Exchange is to give you a better understanding of trading
strategies and portfolio management. You will also learn a variety of financial instruments and
their risks and rewards as they apply to asset management.
Project Overview and Goals
Acting as a prospective portfolio manager for AD517 clients, your potential clients have
entrusted you with $150,000 to invest at your discretion for a period of 2 months.
They are expecting you to invest their money wisely and profitably. While your clients desire a
high rate of return, their tolerance for risk is considered low.
Additionally, your prospective clients are considering other asset managers (your classmates)
and will be ranking each according to the success of their portfolio management. You will be
able to track how you are measuring up throughout this exercise. At the end of the trading
period, if your clients are satisfied with your performance managing their portfolio, they will
extend their relationship with you.
Specifically, they are concerned about the following criteria:
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Returns
o Absolute return: The total dollar increase in the portfolio over the trading
period
o Risk-adjusted return: The return on the portfolio taking into account the level of
risk assumed by you, as measured by the Sharpe Ratio
Registration
To register your account, go to:
http://www.marketwatch.com/game/ad517
Login: (to be announced in class) Registration is free.
Enter the login code above.
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Schedule
Date
Event
Weeks 1-2
Virtual Stock Exchange open trading
Practice trading for the next two weeks
(Weeks of Feb 11 and Feb 18)
Week 3
Join Class Game [INSERT NAME]
(Due date: February 27th, 19:00 İstanbul time)
Week 4
Philosophy, Process and Portfolio Statement Due
(Due date: March 4th)
Week 5-10
Virtual Stock Exchange trading
(Trading ends by May 1th, 23:00 İstanbul time)
Week 11
Final Portfolio Management Debrief Paper due
(Due date: May 6th)
Practice for Two Weeks
The MarketWatch Virtual Stock Exchange is available for practice trading now, but the
competition does not begin until for 2 weeks. I encourage you to use the two-week period to
fully understand the game mechanics, try some strategies, and get a feel for the market as it is
now.
You should register to the game by Feb 27th the latest. You will receive the $150,000 in assets to
begin investing for your potential clients then. By the first week of March you should have
constructed your whole portfolio.
Select from the allowable set of investments securities subject to the restrictions listed below.
Once you have determined your investments, please take a snapshot of your complete
portfolio. For this purpose you can use the simulator’s “portfolio holdings and transactions”
functions.
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Portfolio Management Constraints
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You may purchase any combination of securities allowed by the game.
All cash must be invested. If you want liquidity you have to invest in a money market
fund.
Cash (money market funds) must not exceed 20% of your portfolio at any time. We
want you invested, not sitting on the sidelines.
Keep a diversified portfolio. For example, each position you take in an asset must be a
minimum of 5% of your assets and a maximum of 10% of your assets. Hence, you will
have 10 to 20 different assets in your portfolio.
You can trade as often as you like but will be required to document all transactions and
appropriate commissions, including all relevant documentation for prices.
Common stocks typically trade in contracts of 100 shares.
Should you wish to make a purchase on margin, i.e., via borrowings against your
portfolio assume the margin requirement is 50%. Be aware if your portfolio value falls
significantly you could be subject to a margin or maintenance call.
You are allowed to short a stock, i.e., sell it without owning it, but you will be required
to buy it back before or on terminal date.
Assignment Part 1: Philosophy, Process and Portfolio Statement
This 2-3 page double-spaced paper is due Week 4 (March 4th). In addition to your philosophy
and process, please include the initial positions for your portfolio and your allocations to each
position within the constraints above. For this purpose you can use the simulator’s “portfolio
holdings and transactions” functions.
Sources of Information for Portfolio Managers
Sources that you may find to be particularly valuable for your research include:
 MarketWatch: http://www.marketwatch.com/
 Wall Street Journal: www.wsj.com
 Yahoo Finance: finance.yahoo.com
 Daily Treasury Yield Curve Rates: http://www.treasury.gov/resource-center/datachart-center/interest-rates/Pages/TextView.aspx?data=yield
 Walker Management Library: Walker Management Library Research Links for
Managerial Studies Students
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Assignment Part 2: Final Virtual Stock Exchange Debrief Paper
You are required to liquidate your portfolio at the end of the day May 1, 2015. A 2-3 pages,
double-spaced paper about your Virtual Stock Exchange experience will be due at the end of
the semester (May 6, 2015). Please compute or include the following in your report:
 Include any relevant transaction history with commissions for any and all trades from
start to the end.
 Determine your ending portfolio value.
 Calculate your investment portfolio return and annualize this rate of return.
 Calculate the return for the S&P500 index for the same period of investment.
 How did your portfolio perform relative to the S&P 500? Was it due to luck or your skill?
 Was your portfolio a more or less riskier portfolio than S&P 500?
Please address the following as well:
 Which positions exceeded your expectations? What conditions caused this?
 Which positions underperformed for you? What factors created the performance gap?
 What are the key things you learned from your Virtual Stock Exchange experience?
 How will your Virtual Stock Exchange experience influence your personal investing in the
future?
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