The Impact Of Asset Allocation Between Stocks And Bonds On The Portfolio Performance

Portfolio Performance Measures Dissertation – This dissertation will demonstrate the effects of introducing bonds into the stock portfolio. The two portfolios are constructed in order to compare their performances to show whether the asset allocation between stocks and bonds produces positive or negative effect. The results are twofold and unexpected. I have shown that the portfolio, which includes stocks and bonds, has a lower beta and a lower standard deviation of returns than the portfolio, which includes only stocks.

Therefore the market risk and total portfolio risk of the first portfolio are appreciably reduced. However the return on this portfolio is also reduced. And it is reduced so sharply, that the portfolio that consisted only of stocks has a superior performance in terms of risk-adjusted return than the portfolio consisted of stocks and bonds. Calculated values of Sharpe ratio, Treynor’s measure and Jensen’s measure attest to such a non-presumable result.

It is proposed to test the following hypothesis: does the asset allocation between stock and bonds provide risk-adjusted returns, which are superior to investment in a single asset class? The hypothesis is tested by the instrumentality of three portfolio performance measures such as Sharpe ratio, Treynor’s measure and Jensen‟s measure, which are calculated for the two portfolios: single asset-class portfolio (100% stocks) and two-asset-class portfolio (66.6% stocks, 33.4% bonds). The calculated values of these measures shows weather the returns produced by both portfolios are adequate to the risks taken.

  • 11,000 words – 105 pages in length
  • Excellent use of literature
  • Good in depth analysis
  • Well written throughout
  • Ideal for finance and accounting students

1 – Introduction
Chapter Outline

2 – Methodology
What is Research?
Research Definitions
Features of Student Research
Stages of Research
Types of Research
Deductive and Inductive Approaches
Primary and Secondary Research

3 – Literature Review
Asset Allocation Process
Importance of Asset Allocation Decision
Types of Asset Allocation
Risk Preferences of Individual Investors
Why Should I Invest in Bonds?
Bond Risks
Stocks versus Bonds
Portfolio Performance Measures
Correlation between Stocks and Bonds
Portfolio Beta as a Risk Measure
Standard Deviation
Sharpe Ratio
Treynor’s Measure
Jensen’s Measure

4 – Research and Analysis
Research Limitations and Assumptions
Obtaining Data
Correlation between Bonds and Stocks Returns
Portfolio Beta
Return and Standard Deviation
Sharpe Ratio
Treynor’s Measure
Jensen’s Measure

5 – Conclusions
Challenges for Future Research

6 – Reference List

Reflective Statement
Asset Allocation Recommended by Various Financial Advisors
Different Asset Allocation Models. Years to Retirement or until Money is Needed
Stock Portfolio
Stock-Bond Portfolio: Stocks
Correlation between Stocks and Bonds
5 Year Correlation between Stocks and Bonds
Portfolio Beta
Portfolio Beta (continued)
Return and Standard Deviation of Stock Portfolio
Return and St. Dev. of Stock-Bond Portfolio
Risk and Return
Stocks and Bonds Monthly Standard Deviations
Calculating 3 Month Return and St. Dev. for Stock Portfolio (part 1)
Calculating 3 Month Returns and St. Dev. for Stock-Bond Portfolio (part 1)
Return Distribution
Standard Deviation
Portfolio Performance Evaluation

Portfolio Performance Measures Dissertation
Portfolio Performance Measures Dissertation

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