Using futures contracts to take advantage of the January Effect.

LYON FANNE CASE

Options and Futures - Dec 2004

Introduction:

We divided our report in three parts, which mean to three steps we do to solve the problem of the case. In order to help Professor A. Lyon Fanne to decide whether he should sozzled his position or not on the future contract, we setoff studyd the research made by the professor about the January issuing, then we focused on his investment strategy and finally, thank to the two precedent parts, we took a decision.

Step I. Research on the January set

Lets come back on the analysis that Professor A.Lyon Fanne made on the January effect. Thanks to the professors research, reported in the exhibits, we can analyse 60 socio-economic classs of data (from 1926 until 1985) and make some assumptions to show a kind of model which leads to the final strategy.

First, we can honour that over 60 years (from January 1926 until December 1985), depressed firms declare oneself a higher return in January (higher than the rest of the year and higher than the companies which are incorporated in the S& deoxyadenosine monophosphate;P500 index). Indeed the table « Strategy comparisons small-firm stocks and S&P500 geometrical mean annual return » in Exhibit 1 shows us that you get under ones skin an annual return of 15.



77% when you hold the small firm portfolio during January and S&P500 index the rest of the year, whereas you obtain a return of 12.56% when you buy and hold the small-firm portfolio and only a return of 9.84% when you buy and hold the S&P500 index. Moreover, dismantle during a downturn period, like January 1926 - December 1934, the small firms portfolio dumb provides a significant higher return in January. The S&P500 index provides a return of 2.02% during this period, the small-firms portfolio gives a interdict return...

If you want to get a full essay, order it on our website: Orderessay



If you want to get a full essay, wisit our page: write my essay .