1221641
Chapter: 5 Data Analysis and Interpretation
Graph 1: Trend in stock market returns and FII investments
Fig 1 depicts the trend in stock market return and FII investments during 2008-09 to 2012-13. Firstly with regard to stock market return, the trend seems to be on a linear path but almost referred as stationary data. On the other, the FII investment over the same period indicates the volatility in nature showing fluctuations periodically over the years.
5.3 Causality Relationship between FII investments and stock market return:
The relationship between stock market return and its impact on FII is directly investigated. Therefore, the testable hypothesis focuses on these two economic series. The long-term relationship between stock market return and FII is explored using the concept of cointegration. The concept of cointegration is fundamental to an understanding of the long-run relationships amongst economic time series [Granger 1988]. If the two variables are cointegrated, they must obey an equilibrium relationship in the long run though they may drift apart in the short run. Thus, there is a steady-state relationship between the variables. To achieve the objective, firstly the data was put into a test to know whether the raw data is stationary or not before deciding on cointegration and causality test. Augmented Dicky-Fuller unit root test is applied to test the stationarity of both FII and USD/rupee exchange rate and the result (from E-views statistical software) is given in Table-1 and Table-2 respectively. The unit root test is applied for logarithmic transformation of FII & Stock market return.
Table -1 depicts the ADF test result for FII without any difference – i.e., D (0). This is also referred as lev...
... middle of paper ...
...9
(-0.378) -0.900
(-1.858)
R2 0.0195 0.054 0.0070 0.0049 0.0089 0.1688
F-statistic
* Significant at 5% level, * * Significance at 10 %,
5.12 Interpretation of estimation of OLS regression results
The OLS regression result of stock returns for selected pharma industries is presented in Table-4. In view of these results, there exists a non significant (statistically) relationship between FII investments and stock market returns for all six selected pharma industries. In essence, there is statistical evidence to conclude that the stock returns influence the FII investments in pharma sectors. However, this inference is based only a very few selected companies. This is the limitation of the present study.
Reference: Suchismita Bose, “Mutual Fund Investments, FII Investments and Stock Market Returns in India”, ICRA Bulletin, Money and Finance, September 2012.
The Smith & Wesson Holding Corporation stock has an EPS of 1.42 and a P/E ratio of 10.52. Upon running a regression, a coefficient of 0.139 was calculated. This means that if the SWHC stock increases by 1%, the S&P 500 stock will increase by 0.139%.When compared against the S&P 500 index, the SWHC stock has a correlation of 16.3%. This is relatively low. The SWHC stock can explain approximately 16.3% of the variation in the S&P 500. In other words, the stock does not behave the same as the S&P 500 and should not be used to predict the S&P 500. There is about 83.7% of the...
This case discusses the unique value proposition of Dimensional Fund Advisors (DFA), which used academic research to create specialized portfolios focused on Small Capitalization companies. Their investment philosophy particularly focused on research by Fama and French and Banz. They researched how small cap companies tend to outperform large cap companies over time. In addition, FDA created an additional competitive advantage by created trading efficiencies to reduce transaction cost.
Over the previous five years, the return of the ProIndex fund have outperformed the S&P 500 index, as the 5-year-return is nearly 3 times than the benchmark and the annualised return is nearly 2 times than the benchmark. It means ProIndex fund has a significant increase in value within that period. However, the ProIndex Fund has a higher standard deviation which means it is more risk than the S&P 500 index. Especially for the annualised standard deviation, it is approximately 10% higher than the benchmark. The correlation coefficient between the ProIndex and benchmark is about 0.65 which means both two variables are positive changing consistently, but there are still some other factors which have impacts on the relationship between two variables as the correlation is less than 1. Furthermore, the higher beta, 1.0132, which is more than 1 and it may be one of the reasons for high risk as well since it is more sensitive to the market change. It means that the ProIndex fund would increase by 1.0132% if the market increased by 1%.
U.S. Securities and Exchange Commission. (2012, August 14). International Investing. SEC.gov. Retrieved February 25, 2014 from https://www.sec.gov/investor/pubs/ininvest.htm
The CAPM is the best method of determining the cost of equity for General Mills, inc. (NYSE: GIS). Using CAPM calculations, GIS target for December 2013 is $50.60 (Reuters, 2013). If this security becomes untenable in one year’s time, then the option of increasing dividends to boost investor confidence can be explored. The APT is less accurate compared to the CAPM and the dividend growth models. However, CAPM seems to be the easiest to use. The isolation of the Beta assumptions into a single variable fits the current state of the company best when using the CAPM.
i.e. a. Fama, Eugene F. “Market Efficiency, Long-Term Returns, and Behavioral Finance.” Journal of Financial Economics 49, no. 1 (September 2011). 3 (1998): 283–306. i.e. a. Daniel K., Hirshleifer D. & Subrahmanyam A. 1998. The.
In theory, market capitalisation weighted indices are preferred as compared to equally weighted indices due to the fact that they are superior proxies and are consistent with the true market portfolio. Some practitioners argue that there is a perceived segmentation between the Resources, Financial and Industrial sectors on the JSE and consequently prefer to use the Financial and Industrial Index as an overall market proxy for stocks belonging to this category. Choosing the correct market index in order to regress against, is a vital aspect. Stambaugh (1982) identifies that the CAPM tests are generally insensitive to the choice of market proxy. However, many believe that the broader the selected indices, the better the market proxies. In the UK market, the two main indices used are the FT 100 which is made up of the top 100 companies and the FT All Share Index which is made up of all companies traded on the exchange.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
This is happening because of the rise of GDP causing a rise and fall of DOW. Another
In turn everything in the present and the future is judged through the stocks as they hold a high importance in industrialized economies showing the healthiness of said countries economy. As investing discourages consumer spending over all decreases, it lead...
We analyzed the market for two weeks to determine when the equity market would turn from a bearish to bullish market. Without a change in the market and a declining bond price, we decided to invest in equities according to our investment strategy, which brought us into the second phase of our portfolio. Therefore, at the beginning of February we bought shares in Sirius, Microsoft, Neon, Washington Mutual, and Nike. As assumed, the equity market continued to plummet decreasing the value of all our stocks except for our Gold Corporation stock.
Capital Asset Pricing Model (CAPM) is an ex ante concept, which is built on the portfolio theory established by Markowitz (Bhatnagar and Ramlogan 2012). It enhances the understanding of elements of asset prices, specifically the linear relationship between risk and expected return (Perold 2004). The direct correlation between risk and return is well defined by the security market line (SML), where market risk of an asset is associated with the return and risk of the market along with the risk free rate to estimate expected return on an asset (Watson and Head 1998 cited in Laubscher 2002).
The project is done to find out the impact of stock split on the stock market. In our project, we have made use of event study methodology to assess the accuracy of stock price reaction of 39 public listed Indian companies in National Stock Exchange (BSE) in the year 2006 and onwards. The abnormal returns (actual returns-returns from regression line) results were taken for 20 days before and after the announcement date to test whether the result is significant or not (Level of significance=5%). The project shows that there is no significance difference in the price level before the announcement date while after the announcement date, there was a significant difference in the price level for few days(level of significance being 5%) The project supports the hypothesis that Indian stock market is semi strong efficient.
Hensel, C. R., Ezra, D., & Ilkiw, J. H. (1991). The Importance of the Asset Allocation Decision.
Chapter 11 closes our discussion with several insights into the efficient market theory. There have been many attempts to discredit the random walk theory, but none of the theories hold against empirical evidence. Any pattern that is noticed by investors will disappear as investors try to exploit it and the valuation methods of growth rate are far too difficult to predict. As we said before the random walk concludes that no patterns exist in the market, pricing is accurate and all information available is already incorporated into the stock price. Therefore the market is efficient. Even if errors do occur in short-run pricing, they will correct themselves in the long run. The random walk suggest that short-term prices cannot be predicted and to buy stocks for the long run. Malkiel concludes the best way to consistently be profitable is to buy and hold a broad based market index fund. As the market rises so will the investors returns since historically the market continues to rise as a whole.