# FIN 3080 Investment Analysis and Portfolio Management Assignment III solution

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## Problems

Trading/Market Index table over 2004/1/1 to 2023/12/31, and finish the following tasks.

(a) Manually derive monthly CSI 300 index returns and provide summary statistics on mean, standard deviation, skewness and kurtosis for monthly CSI 300 index returns.

(b) Plot a histogram for CSI 300 monthly returns.

(c) Discuss whether returns of the CSI 300 index follow a normal distribution.

2. Since Jensen, Black, and Scholes (1972, hereafter BJS) , there have been many attempts to empirically
test the relation between asset risks and expected returns. Chen et al. (2019) conduct a simplified
version of BJS’s test on the Chinese market. Please carefully read through Chen et al. (2019) and

(a) Download weekly Returns Without Cash Dividend Reinvested for all A-share mainboard stocks
from China Stock Market Series/Stock Trading/Individual Stock Trading table from the first week
of 2017 to the last week of 2022.

(b) Calculate weekly market returns as the mean value of weekly returns of all mainboard stocks .

(c) Load weekly risk-free return data from “weekly_risk_free_rate.xlsx” or “weekly_risk_free_rate.dta”.

(d) Follow section 4 in Chen et al. (2019) to replicate Table 2 and 3 with data obtained from (a) – (c).
In other words, you reproduce two tables with the original methology yet with different data.

### Hints

1. When the number of observations of requested data is very large, CSMAR may split your data into
mutiple files. Do remember to concatenate all raw data files.

2. Denoted by Rk,t
the returns for index k at time t. You may calculate Rk,t as follows:
Rk,t =
Ik,t
Ik,t−1
− 1,
where Ik,t
is the closing index for k at t. In other words, you do not have to worry about issues like
dividends or changes in tradable shares when calculationg index returns.

3. The file “weekly_risk_free_rate” contains weeklized returns of 1-year government bonds sourced
from CBIRC. You can directly use “risk_free_return” therein as weekly risk-free returns.

4. You may find the combination of bysort and asreg in Stata helpful to run regressions by group and
store coefficients as new columns correspondingly.

5. In an empirical replication, you do not necessarily have to generate exactly the same coefficients or
t-statistics (nor is it possible) but you should follow the original design and find comparable results or
slightly different results with solid justifications.

References
Chen, Yifan et al. (2019). “Empirical test of CAPM in Shanghai securities market”. In: Finance 9, pp. 28–33.
Jensen, Michael C, Fischer Black, and Myron S Scholes (1972). “The capital asset pricing model: Some
empirical tests”. In: Studies in the Theory of Capital Markets.