Share Trading Assignment Example | Topics and Well Written Essays - 2500 words

Share Trading - Assignment ExampleAs the report stresses diversification of investiture spreads the risk over many assets. The concept of Efficient Market Hypothesis (EMH) states that since the stock prices reflect all relevant tuition in the market, it is non practical for the investor to beat the market by purchasing selling stocks at inflated prices or purchasing undervalued stocks. Thus, in order to beat the market the investor will nominate to be well informed regarding the reliable fundamentals of the stocks and carefully follow historical trends. Technical abstract helps and investor to predict future movement of stock prices by analysing past trends whereas fundamental analysis considers a top-down approach that analyses not only the fundamental financial position of firms but also macro-economic and industry trends. From the testify it is clear that the efficient market hypothesis assumes that in financial markets, the current prices reflect all the education availa ble in the market and thus the true value of the stocks can be reflected from their past security prices. The theory assumes that the market participants be pass water rationally and try to maximize their returns by processing all information available to them. From above it can be said that the securities are correctly priced provided the information available to public. The best strategy to beat the market is to construct and estimate the portfolio performance using technical analysis and fundamental analysis. ... The theory assumes that the market participants behave rationally and try to maximize their returns by processing all information available to them (Jegadeesh, and Titman, 1993, pp.65-91). From above it can be said that the securities are correctly priced provided the information available to public. Considering the above theory it can be said that EMH states it is not possible to beat the market since efficiency of stock market causes stock prices to reflect all releva nt information. Keeping this argument in mind, the investor will have to allocate investible sum of ?50,000 in two portfolios consisting of equity shares of companies listed in FTSE All Share. The lists of companies for two portfolios are depicted in Appendix - A (See Table B.1 come of Companies in Portfolio I and Table B.2 List of Companies in Portfolio II). The best strategy to beat the market is to construct and evaluate the portfolio performance using technical analysis and fundamental analysis. The list of companies mentioned in the two portfolio were selected after considering various macro-economic factors such as currency movements and strengthening of Euro with respect to dollar general investor sentiments after US Fed chairman announced gradual taper of quantitative easing misfire of Bank of Japans loan support programme and defraud term view of investors on junk bonds expectation of an onset of bull market early 2014 especially in emerging markets where markets are ex periencing upward trends (Financial Times, 2013). Portfolio valuation Fundamental Analysis Fundamental analysis aims to analyse the various macro-economic factors that might affect the performance of