Corelli A (2016) Analytical
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Schneeweis T, Crowder G B, Kazemi H
(2010) The New Science of Asset Allocation, John Wiley & Sons, Inc.

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Equilibrium under Conditions of Risk.” Journal of Finance. vol. 19, no. 3, pp.
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The timeline is
subject to time constraints, holidays and course workload of the students
during the ongoing semester.




01 Feb. – 08

Review and Tentative Bibliography

09 Feb. – 22

Data Download and
Model Setup

23 Feb. – 06

and Interpretation of Results

06 Mar. – 12

First Draft of
the Report Submitted to the Advisor

13 Mar. – 19

Final Review
and Submission of the Final Research Project


The tentative
timeline for the project is as follows:







In this sense,
an analysis of the volatilities of the assets in the market will give clear
indication of the improvements or downturns, for the investors, as a
consequence of the possible introduction of short-selling in the DFM market.

Further to the
analysis, both parts are then reworked by allowing short-selling in the
algorithm so to check what the differences would be, in case short-selling is
allowed in the market and investors can benefit from it.

The second part
of the project is the design of the Security Market Line (SML), by plotting the
betas of the stocks in the market against their expected return. The line is
drawn between the combination of beta and expected return of the risk-free rate
and the combination of beta and expected return of the market portfolio.

After the
efficient frontier is derived, the risk free rate is introduced in the market
and the Capital Market Line can be drawn, as the line starting from the
vertical axis (expected return of the risk-free rate) and tangent to the
optimal portfolio on the efficient frontier (the highest Sharpe Ratio).

The algorithm is
performed using the Solver tool in Excel. The program minimizes the portfolio
variance for different pre-set values of the expected return on the market,
thus deriving the efficient frontier of the risky assets in the market. In
order to keep consistency with the nature of the DFM market the weights are set
in order to comply with absence of short-selling opportunities.

derivation can be done through an optimization algorithm in matrix form, where
the variance of each portfolio in the market is the matrix product of the
vector of weights of each asset in the portfolio, and the covariance matrix of
the assets in the market.


Beta is the
actual slope of the regression and defines the position of the fit line in the
space of all the daily, weekly or monthly combinations of stock return and
market return. It therefore indicates the relationship between the (excess)
return of a stock (portfolio) in relationship with the (excess) return of the

The measurements
are on daily data for the past three years, weekly data and monthly data on the
same period. The beta to be used in the SML analysis is obtained then by
averaging the beta values obtained with the three different methods.

Betas in the
industry, as calculated by major providers, are normally based on three years
of weekly or monthly stock prices and returns. In this project the aim is to
introduce a new methodology that calculate beta as the average of three
measurements, from different datasets.

The regression
also allows to get the alpha associated to each stock, which will also reflect
in the SML graph. As a measure of efficiency compared to the CAPM hypothetical
returns, alpha is the piece of information that speaks about efficiency.

The initial
analysis involves the regression of all stocks against the DFM market index
(DFMGI) in order to estimate the beta associated to each stock. As mentioned in
the above description, beta is a key input in the CAPM model.

Data and Methodology


categories provided by DFM: (1) Shares: The DFM market lists various share
types, such as ordinary shares that provide investors with a stake of the
company, preferred shares that are virtual and issued by the companies and
traded in the market, and rights shares. Ownership in companies has limits in
order to avoid any obstacles for companies. (2) Dual listed shares: This type
of share is when companies list and trade their shares in more than one stock
exchange. An example of that could be RAK Ceramics, which is traded on the Abu
Dhabi Securities Exchange (ADX) and the Dhaka Stock Exchange in Bangladesh. (3)
Other financial instruments: DFM is working closely with the SCA to introduce
more financial instruments to benefit investors, and these include Short
Selling (not included currently), Market Makers, ETFs, Mutual Funds, and many

DFM was the
first market to consolidate its operations with NASDAQ Dubai to facilitate
transactions for investors and provide them with more asset classes to choose
from, while each market is regulated separately. Dubai Financial Market
provides investors with a wide diversity of economic sectors, such as banking,
transportation, insurance, consumer staples sectors etc…

UAE Securities
and Commodities Authority (SCA) regulates the DFM market and issues laws and
standards to ensure maximum protection and security for investors and
introduced an initiative (Margin Trading and Delivery v Payment mechanism).

Demand exceeded
expectations and reached AED 201 Billion. It became publicly listed on 7th
March 2007 and was the first regional exchange to become publicly listed.
Furthermore, DFM is Sharia compliant reflecting His Highness Sheikh Mohammad
Bin Rashid Al Maktoum’s vision for the Emirate.

The DFM was
first launched on 26 March 2000 by Government of Dubai with a Decree of
14/2000. It became a public shareholding company on 27th December 2005, with a
very high IPO and 20% capital issued on the stock exchange.

The DFM market
has strengthened the Dubai market and made it the most successful financial
centre hub in the region in a very short time period. It is a secondary market
for trading securities for publicly listed companies and institutions, bonds,
notes and T-bills issued by the federal government, in addition to mutual funds
and diverse financial instruments.

About DFM Equity Market