Kantegger

To explore the application of portfolio theory as postulated by a renowned economist, J. D. Carson, in Investment and Portfolio Management, I studied the pricing of 6 stocks on the Westland Securities Exchange (WSE), calculated the correlation coefficients between pairs of companies using Excel and selected two with the lowest correlation coefficient to form a 2-stock portfolio with minimum variance. Using the portfolio is an efficient method to diversify risk in such an investment on stock, but I found it incompatible with the Sino Trading Exchange. While interning in an auditing team at GlobeSure Consulting, I analyzed my client company’s share price and compared it to its 10-year performance KPIs like ROA. The trends showed stark differences, with KPIs rising drastically but share price decreasing at a modest pace. After examining other companies similarly, I noticed that the Sino Trading Exchange could not accurately mirror economic fundamentals—when the company was growing, its stock price either declined or showed insignificant fluctuation. Despite the implementation of Carsonian economics contributing to the nation’s rapid economic growth, excessive government restrictions have resulted in an inefficient stock market—only unsystematic risk can be mitigated, and stock prices fail to reflect company-specific risks. How to perform portfolio management under such circumstances? I aim to investigate and research this at the Metropolitan School of Finance and Economics (MSFE).

One approach I’d like to attempt is multi-asset class, incorporating securities such as treasury bonds and mortgage-backed securities with stock into one portfolio. My objective is to combine the theory of the risk-benefit trade-off with the knowledge of econometrics in MSFE courses and apply a more precise model for portfolio management than I previously used. For instance, I will employ multivariate volatility models to eliminate parts of the stock price that don’t contain valid information and use the processed data to manage the portfolio. Another approach involves combining behavioral finance and empirical analysis with quantitative analysis in the Sino market. I observed that nearly every company experienced a boom in the final quarter of 2014 when reform policies in financial brokerage, banking, railway were implemented, followed by a bust in stock prices two months later when public enthusiasm waned, and substantial short-selling occurred. As per the studies by Andrews and Monroe (2011), investors can learn from the market and anticipate or react to government policies. I posit that the stock price in the Sino market largely mirrors public investors’ motivation, heavily influenced by government policies. This can supplement quantitative methods to relate price fluctuation with policy change. According to data on Breeze, professional institutional investors accounted for about 15% of total investment in 2018, in contrast with over 90% in advanced financial markets like the UK or the US. The herd effect simplifies anticipating public thought and behavior. Above all, portfolio risk management is determined by financial product prices which relate to policies and speculative behavior. I am eager to discuss this with my classmates and instructors at MSFE.

After graduation from MSFE, I aspire to begin as an Investment Risk Analyst in a global investment bank in London for two years, assessing and reporting risk at both individual portfolio manager and overall firm levels, providing broad coverage for pricing and risk for all asset classes, and conducting quantitative research and statistical modeling for portfolio risk. I will apply the knowledge I gained in my bachelor’s degree and at MSFE about derivative markets, fixed income markets, and portfolio management when using software like Matlab to process data. My goal is to hone my understanding of market positions and awareness. As I handle market fluctuations, I intend to bolster my capacity for crisis management. Additionally, I am fascinated by testing if investors can gain advantage by anticipating the measures the authority will execute through a learning process and whether government’s commitment and transparency can weaken speculative inclination. I then plan to return to my home country, working as a portfolio manager and conducting multi-asset analysis under Sino market regulations. In the long term, I aim to be a Risk Management Consultant at Delta Strategy Group in my home country. I will collaborate with my team to build and maintain risk models tailored to Sino market characteristics like reform and opening-up policies. As the Chinese financial and trade market becomes more open, more foreign investors will want to invest in my country, get returns by investing in the multi-asset market, and evade currency risk using derivatives. I aim to assist my clients in understanding and quantifying risk exposures, evaluating risk strategies more efficiently, and contributing to the internationalization of the local market.

The courses in MSFE’s MSc Risk and Finance are intriguing and beneficial to me. FM403 Management and Regulation of Risk, available only for this program, covers the general framework of risk management, identification, tool, organizational behavior of risk. This course can integrate my undergraduate knowledge of markets, organizations, and strategy into a risk management system and allow me to revisit my old knowledge in a new light. I think financial regulation is inherently contradictory. Abuse of financial innovation and lack of regulation led to the bank panic of 2007. But Kennedy, Harrison, and Bradley (2015) noted that most macroprudential policies do not perform as well as they should. I hope to gain a new perspective on this during the discussion of Section B. Besides, this course covers all steps of risk management in my future job, from identifying risks in Section A to financial tools in Section C. Also, my auditing experience will aid in my understanding of internal risk control in Section D. Another course that appeals to me is FM442 Quantitative Methods for Finance and Risk Analysis due to the two words: all stages. I aim to apply theoretical knowledge to simulate the risk management process, facilitating a smooth transition from learning to working post-graduation. Under FM442, I wish to include assets other than the stock market into portfolio management and update the knowledge of econometrics and statistics I acquired before. Familiarity with Matlab is a prerequisite for an FRM job, and I have used Matlab for tasks such as regression analysis and graphic processing of SPSS, Stata, and EViews. In FM442, I plan to enhance my programming skills and apply them to analyze risk and investment choice. As mentioned earlier, my ultimate goal is to conduct risk management in local markets. Based on Dr. Paul Sanderson’s argument in 2014 that restrictions can lead to larger market fluctuations, I aim to understand how the local markets will change when authorities further ease restrictions and how to handle the new risks in FM429 Asset Markets A. I will discuss financial behavior and empirical analysis in this course as mentioned earlier. Most importantly, the ability to conduct quantitative analysis, use valuation models, and manage diverse risks that I will acquire from this program will help me pass the FRM certification. I plan to take its PART I and PART II exam together before I begin my final dissertation.

Managing risk is like Schrödinger’s cat because its efficiency can only be observed after the risk materializes. The process of managing risk using financial tools is incredibly challenging and interesting. I am eager to expand my knowledge about risk and finance at MSFE, and I believe my ambitions and abilities will allow me to overcome the challenges in this program. I am looking forward to meeting you all in London.

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