Financial Market Analysis - Book Report/Review Example

Introduction The literature belongs to finance has now entered in an era wherein riskiness has been given a major consideration (Blake, 1990). Investment is one of the most important fields from the viewpoint of an individual or from the viewpoint of an organization as it is based on certain decisions relates to the effectiveness. Management of a portfolio is an important aspect from the viewpoint of the field of Finance and there are certain aspects, which are important for them. Beta, Standard Deviation, mean return and summation of expected return are some of the important elements of the field of investment (Boehmer, Broussard and Kallunki, 2002). The main theme of this order is to analyze the Australian Stock Market (ASM) from different aspects. There are two different parts of the assignment that needed to be covered accordingly. Analytical Framework 1. There are eight different asset classes associated with the assignment, which are, Australia Shares, International Shares, Property, Bonds, Cash, Portfolio Beta, Portfolio KAPPA and Portfolio Omega(Chen, 2010). The most important feature associated with Australian shares is its high expected return, which has a mean expected return of 11.58% with the risk factor of 18.37%, which is comparatively lower than that of international shares, which has a mean expected return of 8.87% with risk factor of 19.49%. Bonds and Cash have low amount of mean expected return amounting to 7.38% and 5.55% respectively. The major characteristic associated with each of the asset class mentioned in the table is that the expected return of each of the asset class comes in positive. Portfolio Omega has high expected return in mean as well, which is 10.33%. 2. In finance, the meaning of expected return is the amount of return, which has been expected by the investor (Kirkpatrick and Dahlquist, 2011). Any difference among the expected return and actual return would be termed as return deficit or return surplus. Investors always expect a high return from their securities, but the return on the shares of the companies always depends upon the industry situation and individual performance of the company. Expected return is mentioned in the table-1 with each of the asset class and the highest amount of expected return associated with Australian Shares, which is 11.58%. It means that the investors have firm confidence on the Australian shares and that is why they are expecting high returns from them. On the contrary, the factor of risk has been defined through the Standard Deviation in finance. From the table-1, it is found that highest amount of risk factor associated with the International shares in particular with a standard deviation of 19.49%. 3. It is always recommended in the field of finance that “not to put all eggs in a single basket”. In finance, diversification means to allocate the funds accordingly in different assets classes accordingly. With the help of effective diversification strategies, an individual can mitigate the risk accordingly and can enhance the return consequently. In the attached example, this particular aspect has been shown with immense care, in which different asset classes have been taken into consideration and each of the asset class has an expected return associated with it. As found from the table, the most risky asset class is International shares, hence low amount of proportion or funds should be allocated to it. Portfolio of Kappa has the lowest amount of standard deviation in it representing a net proportion of 2.51% with an expected return of 6.30%, while Portfolio of Omega that comprises on 50% of Australian Shares, 30% international shares and 20% in property has the highest amount of standard deviation in it manifesting a proportion of 16.34%. The expected return with the portfolio of Omega is also the highest among all of the portfolios showing a net proportion of 10.33%. 4. The main purpose of superannuation funds is to encourage the people towards investment. This particular fund will benefit the individuals after their retirement and they are quite important from different viewpoints. There are three portfolios which have been selected for the assignment and each have different class, hence the class of investors also vary accordingly When it comes to portfolio beta, then it is found that there is a lot of fluctuation in the return of this portfolio, hence it will be good for short term investment as the mean expected return is also high, which is 8.80%. Investors should use Active Investment approach, in which investment would be done for short time period in the investment in this portfolio. Investors should use Passive Investment in this particular portfolio because the mean expected return is 6.30% with very low risk factor of 2.51%. In Passive Investment, investment should be done for long span of time. Portfolio Omega has the highest amount of risk association, which is 16.34% with high expected return as well, which is 10.33%. Risky Investors should take the challenge with this particular portfolio. Question-2 i. Disclosure is an important activity for an organization and organizations always disclose their financial information in their financial statement. Continuous Disclosure means to comply with the rules and standards of International Financial Reporting Standards (IFRS) every time, when the company makes their financial statement. Layout as well as presentation style should also be followed in the same way. The examples of the disclosures are revenue recognition, expense recognition and asset recognition. ii. A market wherein the prices are manipulated and impacted by erroneous information that prevents the efficient negotiation of prices is known as a False Market. iii. No, there is no exception in the disclosure of information and every company has to comply with the standards and information of ASX. Conclusion The main theme of this order is to analyze the Australian Stock Market (ASM) from different aspects. All of the answers have been given effective and timely information accordingly and it is found that portfolio management always brings effectiveness in the life of the investors. References Blake, D. (1990). Financial market analysis. 1st ed. London: McGraw-Hill. Boehmer, E., Broussard, J. and Kallunki, J. (2002). Using SAS in financial research. 1st ed. Cary, N.C.: SAS Pub. Chen, J. (2010). Essentials of technical analysis for financial markets. 1st ed. Hoboken, N.J.: Wiley. Kirkpatrick, C. and Dahlquist, J. (2011). Technical analysis. 1st ed. Upper Saddle River, N.J.: FT Press. 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