Portfolio Management Master Essay Example | Topics and Well Written Essays - 1000 words

Portfolio Management Master - Essay Example Thereafter the effects on smaller securities will be masked by those of larger portfolio. (Gruber 26). This is not to imply that returns will increase with sensitivity to the said factors. Because some factor that are prices cannot be diversified yet are persuasive, they will definitely affect the price returns as opposed to those that are unpriced yet can be diversified. Therefore the distinction of priced and unpriced factors defines the first role of APT in portfolio management. An example of this role in deciding to buy steels that are not persuasive to current prices, is for the APT manager to decide how to buy knowing they will not get extra returns. (Gruber 26), (Anonymous 337 - 352) Secondly, the manager must ensure that there is enough knowledge of choosing steel stocks to cover the extended risks and must also ensures that this risk is spread across several securities. Thus, the APT process must guarantee trade offs as prices make returns sensitive. This means that there is neither a good or bad decision, rather, risk return aim are the most guiding factors. (Gruber 26). Thirdly, APT will influence choice of portfolio depending on income. ... (Gruber 26) Therefore by use of Arbitrage Pricing Theory, the management will lay out a portfolio that considers several factors of influence under the prevailing market conditions. Thereafter priced risks will persuade the investor to take the greatest risk similar to CAPM. Risk will vary with sensitivity of the influences. However the market portfolio has no significance role in the decision of market performance. (Gruber 27). Hypothesis: Whenever the CEO of a company retires, an excess return can be made by buying the company's stock. This hypothesis can be tested by research into the retirement of famous CEO of companies that are listed in the stock exchange markets. Examples of key CEOs who have retired are Lee Raymond from Exxon Mobil (XOM), John Kanas from North Folk Bancorp, Robert Nardelli from Home Depot, Stan O'Neal from Merrill Lynch. A list of up to 50 CEOs who have retired from listed companies will need to be made to make up study of individual retirement and stock sale cases. (Oduma 1) Next research will need to be done to establish which which stocks sales went up or down as soon as the CEO of the respective companies retired from the listed companies. The assumptions to be held are that the stock quantities are stable as well as there price fluctuations. If more than 50% of these results reflect this statement, then the hypothesis can be said to hold. If not then the hypothesis in null. (Oduma 1) A long side this research, there will be need to identify factors that have previously led to increased buying of company stock. In this case, the issue of CEO's retirement will need to