Investment Recommendation: Analyzing dynamic beta and value-at-risk (VaR) portfolios in R software

Abstract

This teaching case has the differential of providing the script in free software R to perform the exercise in the laboratory or classroom with notebooks. We provide the theory and methodology for stock and index analysis of global capital markets, enabling undergraduate or postgraduate students to experience the reality of a market analyst with a powerful and free statistical analysis tool (R software). In addition, we provide contact with capital markets outside Brazil, which may enhance the knowledge of future professionals and researchers. The case itself proposes that the student prepare an investment recommendation report detailing alternative strategies for allocating US$ 10 million capital in the United States in July 2018. For this, preliminary analysis of the investment context should be performed in order to identify the market benchmark index and the main companies. Soon after, it should make the choice of three companies, collect their quotes, calculate their returns and make estimates of their standard deviations, betas and dynamic VaR, using GARCH (1,1). The case proved to be effective in that it allows comparing, in terms of risk and return, investment alternatives and showing that stock portfolios are not always able to "beat" the market.