Asia Pacific Capital Management has appointed you as a fund manager. Your first task in this
new position is to establish a long-only, 100% equities systematic fund to manage a $1 billion
pension fund.
You have been given a brief that your portfolio should be based on a belief that investors are
vulnerable to behavioural biases and information incorporation in stock price is subject to
investors’ under- and/or overreaction. Additionally, investors are heterogenous with regard to
degree of risk tolerance, investment horizon and tax status. However, you have been given
autonomy to select particular trading strategy which will be used to implement the core belief or
philosophy.
You are only permitted to invest in domestic equities and are provided with a list of stocks that
comprises your feasible set of investments. This list is available in the Assignment data.xls
spreadsheet. The portfolio is required to comprise 20 stocks in each year. You have the autonomy
to select portfolio formation and evaluation period. However, this choice should be consistent
with the theory and previous empirical evidence. The PHperformance of your portfolio will be
assessed against a benchmark of the S&P/ASX200 Index.
Devise and explain a systematic trading system for your investment fund based on Value
and Momentum philosophy. You should clearly justify your decisions. Your system should
consider the following: method applied to select securities each year and scheme for
weighing stocks in your portfolio.
Apply your systematic trading system to identify the stocks that you would have included
in your portfolio and their relative weightings over the sample period. Make sure you clean
the data and properly handle missing observations before conducting any numeric analysis.
Value and Momentum philosophy:
https://alphaarchitect.com/2015/03/26/the-best-way-to-combine-value-and-momentum-investingstrategies/

:~:text=described%20as%20follows%3A-,Rank%20all%20stocks%20on%20value,stocks%20that%20are

%20the%20cheapest
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2174501