50% of the mark for this half of the module is based on a group trading simulator project.
You need to form a group of no more than four – the ideal number of students is three.
The simulators is based on the US stock market.
ONE member of the group needs to register on the following website.
The idea is to build a portfolio – you can start trading from 20/01/2020 until 10/04/2020.
The main purpose of the assignment is for you to explain your investment choices and put
into practise your ideas – marks for the assignment are not based on profit/loss.
Note that you are expected to make a minimum of 10 trades.
The assessment has four components:
1. A max two-page document that sets-out your trading strategy, this could be based on any
of the portfolio techniques discussed in this, or any other, class. You need to explain what is
the purpose of your portfolio (e.g., is it intended to maximise growth, diversification, risk etc),
how you choose stocks and any economic models or theories you may be following.
2. A max two-page literature review that considers: why do equity prices change – what are
the main drivers of equity prices and changes in their valuations.
There are two broad approaches to this literature:
one that focusses on the cross-sectional behaviour of stock returns. Look over these papers
to get you started on the literature
second, a time series approach, look at these
you can also examine them together!
these papers are designed to help you find some literature and the basic ideas in them. You
do not have to cover both aspects (cross-section and time-series) of the literature (although
you can)
3. You then need to keep a diary that details any trades you make after the initial portfolio,
this should be max one-page portfolio change and should state what assets you sold, what
assets you bought and why.
4. You then need a max two-page document that analyses the performance of your portfolio
and where you felt things went well and poorly and what you would change in you were to
repeat this exercise.
Picking Stocks
The website use for the trading simulator contains plenty of resource for choosing stocks and
how to build a portfolio. Some further ones include:
Some tools that might be useful:
It is argued in some literature that particular types of stocks may outperform others
e.g., small cap vs large cap; value vs growth etc
You may prefer to pick stocks from particular industries – some industries are regarded as
defensive / cyclical etc
Cyclical: Basic Materials, Consumer Cyclical, Financial Services, Real Estate
Defensive: Consumer Defensive, Healthcare, Utilities
Sensitive: Communication Services, Energy, Industrials, Technology
You could try to find stocks that are mis-priced – perhaps based on an asset pricing model
e.g., CAPM / Factor model etc
You could opt for a diversified portfolio – track the movement of the market
You could base your stocks on past movements e.g., technical analysis
You could act as a day-trader, buy and selling the same stock within one day
Or anything else you wish and are able to explain!

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