Develop and demonstrate ability to construct and evaluate a portfolio.

Objective : The objective of this assignment is to assess your understanding of the following learning outcome(s):

Learning outcome 1: Apply contemporary issues in portfolio management.

Learning outcome 2: Perform standard portfolio modelling techniques to a range of asset classes.

Learning outcome 3: Develop and demonstrate ability to construct and evaluate a portfolio.

Learning outcome 4: Apply analytical and problem-solving skills in portfolio construction.

Learning outcome 5: Measure and manage risk exposure and performance of a portfolio.

Learning outcome 6: Critically evaluate the active versus passive debate in portfolio management.

Assignment Details
Your submission should not exceed 5,000 words excluding graphs, tables, and the disclaimer, but including any appendices.

Question 1 Momentum and Behavioural Finance

i Momentum strategies have been shown to earn excess risk-adjusted returns across every developed stock market. Using examples from specific funds, explain carefully what constitutes a momentum strategy and whether you would recommend using momentum in your own portfolio.

ii Behavioural finance research has uncovered a catalogue of biases among investors that appear to contradict market efficiency. Choose any two (2) biases and critically evaluate their relevance for somebody working as a private client investment advisor.

Question 2 Risk Management in a Crisis

In the aftermath of the 2007-8 Global Financial Crisis, Andrew Haldane, Chief Economist, Bank of England in a speech entitled Why Banks Failed the Stress Test` concluded that:

"Risk management models have during this crisis proved themselves wrong in a more fundamental sense. They failed Keynes` test - that it is better to be roughly right than precisely wrong. With hindsight, these models were both very precise and very wrong."

Required: Critically evaluate Haldane`s statement in the context of modern risk management methods such as Value-at-Risk; the evolution in risk management since the Global Financial Crisis; and a series of high-profile rogue trader and operational risk episodes.
What are the key lessons that can be drawn from these issues for the future of risk management?