Homework 2
Due 14 February 2008 at 11:59 pm.

Pose one interesting question about a portfolio of assets based on price
and/or trading volume, and select a portfolio from the asset classes we
studied in class that is appropriate to your question.  Then write a
computer program to answer your question on data available from WRDS,
OpenTick, the Internet, or other sources at your disposal.  You may use
intraday, daily, or weekly data.

Prepare a presentation of not more than 5 minutes on your results.
This should not be a lengthy assignment, and you need not prepare
an additional formal written submission.

You should have either a sample size of 100,000 data points, or a period
of at least 5 years (unless the asset has not been traded that long).

Here are some questions of appropriate scope, but most important is that
you select a question that is interesting to you!

* Does my portfolio obey the random walk hypothesis?
  (Follow one of Lo and MacKinlay's tests for equities, or research and
   perform another appropriate statistical test.)

* What is the cost of hedging downside risk on a position in a security
  by combining it in a portfolio with an out-of-the-money option?
  What kind of returns are required on the underlying security
  to make the hedge cost-effective?

* Does holding the portfolio have smaller "drawdowns"
  (declines in the portfolio value between a local maximum and
  a local minimum) than holding any of its components?

* How does my portfolio perform under standard portfolio management
  measurements, such as the Treynor and Sharpe ratios and Jensen's alpha?
  Assume the capital asset pricing model (CAPM), and use the performance
  of an appropriate index to estimate market returns.

* What is the correlation between price movement and trading volume?
  During periods of high volume, do prices move more?
  Are price movements more stable if one considers them versus volume   
  instead of time?