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Applying the Black-Litterman Model Using Analyst Recommendations on the Nordic Stock Market

Skeie-Larsen, Theodor; Nguyen, Quang Minh Dang
Master thesis
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Preliminary Thesis Report.pdf (630.9Kb)
URI
http://hdl.handle.net/11250/2580206
Date
2018
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  • Master of Science [1550]
Abstract
In this thesis, we are using consensus stock analyst recommendations which are

applied to the Black-Litterman optimization model. We create a portfolio

consisting of the Nordic Stock market between 2002 and 2017 to examine

whether the analyst recommendations could add value to the model. The stocks in

the portfolio are separated into portfolios based on the type of recommendation:

“buy”, “hold”, and “sell”, and tracked historically to determine the stocks’

performance relative to the market. The investment period is divided into three

investment periods surrounding the Great Recession. The portfolio created from

the Black-Litterman model is then compared against benchmarks to determine the

raw excess and risk-adjusted returns based on performance measures. The Black-

Litterman performed significantly better than the market portfolio before the

Great Recession but underperformed in the period afterwards in terms of raw

excess and risk-adjusted returns. This suggests that the consensus analyst

recommendations may add value in certain situations for the Black-Litterman

model separated by the type of rating.
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2018
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Handelshøyskolen BI

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