Bachelor of Science (Honours) Finance and Accounting

New Era University College

BBBFN-3334
Investment & Portfolio Management
May 2023 Semester
Test 1-1 (10%)

CLO3 - Demonstrate a sound understanding of the basic principles and concepts of portfolio
management

Please return the completed coursework on Wednesday 28th June 2023.

This coursework will account for 10% of your final mark for this investment module.

The work is a group work.

Please submit typed work, not hand written.

AQR, a large hedge fund founded by famed investor Cliff Asness, uses a strategy of
statistical arbitrage by taking a short position in stocks with high beta and a long position in
stocks with a low beta. This strategy is known as a bet against beta. The theory is based on
alleged inefficiencies with the capital asset pricing model, or CAPM, due to large funds being
constrained in the type of leverage they can utilize and the risk they can take. Beta is a
statistical measure of the risk of an individual stock or portfolio against the market as a
whole. The phrase bet against beta was coined from a few economics papers written by the
creators of the strategy. Write a paper that explores possibilities of using ‘betting against
beta’ as a portfolio optimisation strategy for fund managers in Malaysia and present your
idea as creatively as possible.

Source -
1. https://www.investopedia.com/articles/investing/082515/how-aqr-places-bets-
against-beta.asp
2. Frazzini, A., & Pedersen, L. H. (2014). Betting against beta. Journal of Financial
Economics, 111(1), 1-25.

You are assisting the manager of an investment management company in Malaysia and are
required to prepare a report (700 - 1000 words) to explain the effectiveness of the above
strategy in investment and portfolio management.

Summarize the findings of ‘betting against beta’ strategy and suggest possible
investments based on the strategy. Present it in 10-15 minutes.