FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

APPENDIX TO CHAPTER 9
Appendix A-9
FINDING BETA THROUGH REGRESSION
Regression, a statistical tool used for measurement of beta establishes
relationship between historical data of returns of one security with that of
another (market index in this case). The relationship thus established can be used
for predicting the expected return with the given or expected behaviour of the
market.
Regression of past prices of a security and the value of index can be performed
on MS Excel. Presented in the Table A9-1 are the price data for Hindustan Lever
Limited (HLL) with that of the NSE index NIFTY. NIFTY represents the market returns
as a proxy. Columns 3 and 4 of the Table A 9-1 are the closing prices of HLL and
the values of NIFTY respectively for one year commencing 1st April 2005.
Daily returns on HLL and NIFTY are computed in next two columns (columns 5
and 6) using following formula:
One day Return for Day n (%) =

Pn - Pn-1
x100
Pn-1

where Pn and Pn-1 are the prices or values of the index on day n and the previous
day, n-1 respectively.

These returns on the stock and index are plotted as a scatter diagram. The
regression analysis can be done on the historical data taking index returns as
independent variable (on the x-axis) and stock returns as dependent variable
(on the y axis). From the past data we attempt to find the linear equation that
describes the relationship between the dependent and independent variables in
the best possible manner. The linear relationship between the two variables can
be expressed as:
y = + x + e
where a is the y intercept and is the slope of the line, and e represents the
deviation of the actual returns from the line.

The idea of regression is to project the value of dependent variable (stock

returns) based on the expected behaviour of the independent variable (the
market returns). If we do that the actual values are likely to differ from the
forecast values of the returns on the stock. The objective of regression is to find
such a relationship between the two variables that commits least errors. The error
of the forecast is given by:

OXFORD UNIVERSITY PRESS, 2008

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

e = y'-y = y'-( + x)
where y` is the actual return and y the forecast return on the basis of expected
market return of x.

This is shown in the Figure A9-1 which draws the regression line for four points a, b,
c and d. The regression line that fits best minimises the sum of squares of all the
errors.
Figure A 9-1: Regression
Stock Returns (y)
a
c

error
b

Regression Line
Market Returns (x)

The regression line establishes the relationship between dependent and

independent variable through parameters a and . The parameter reflects the
sensitivity of the stock returns with that of the market while a (the y-intercept)
represents the return when the expected market return is zero. For example if the
regression equation is y = 1.12 + 1.3x it implies that the returns on the security are
1.3 times sensitive than the market and is expected to provide a return of 1.12% if
the market returns are expected to be zero. If the market returns are expected
to be 10% the returns on the security would are expected to be 1.12% + 1.3 x 10%
= 14.12% as per the regression equation. If the actual returns happen to be 14%
the error of the regression equation is 0.12%
The parameters of a and can be calculated either by performing regression on
the EXCEL or by using following equations:

OXFORD UNIVERSITY PRESS, 2008

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

Beta,

XY - X Y
2
n X 2 - ( X)

(X * Y n) - X * Y.
(X 2 n) - X 2

.......... .......... .......... ...Eq(A 9 - 1)

Average of Products - Product of Averages

Average of Square(Market) - Square of Average(Market)

Alpha,
= Y - X
.......... .......... .......... .......... .......... .......... ......Eq (A9 - 2)
Where y = Returns on the stock, x = Returns on the index, and
X and Y are the average market returns and stock returns respective ly

Alternatively we may perform the regression in the EXCEL. Using following path:
Tools Add-in Analysis ToolPack Data Analysis Regression
Alternatively one can plot a scatter diagram Go to Chart Menu and click Add
trend line.
250 observations of price on the share of Hindustan Lever Ltd (HLL) and that of
the NIFTY are given in Table A9-1.
Table A9-1: Daily Price Data of Hindustan Lever and Index Value
Sr. No.

Date

1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

2
01-Apr-05
04-Apr-05
05-Apr-05
06-Apr-05
07-Apr-05
08-Apr-05
11-Apr-05
12-Apr-05
13-Apr-05
15-Apr-05
18-Apr-05
19-Apr-05
20-Apr-05
21-Apr-05
22-Apr-05
25-Apr-05
26-Apr-05
27-Apr-05
28-Apr-05
29-Apr-05

HLL
Closing
Price
Rs.
3
132.20
131.50
129.75
132.75
132.05
132.05
130.00
132.45
134.95
132.25
130.10
126.90
131.20
131.20
132.20
133.75
137.75
143.35
144.50
137.55

NIFTY Return on Return on

Product
Closing HLL (X) Index (M)
X*M
%
%
Value
4
2067.65
2063.40
2052.55
2069.30
2052.85
2031.20
2008.20
2024.95
2025.45
1956.30
1927.80
1909.40
1929.70
1948.55
1967.35
1970.95
1957.10
1935.40
1941.30
1902.50

X2

M2

-0.53
-1.33
2.31
-0.53
0.00
-1.55
1.88
1.89
-2.00
-1.63
-2.46
3.39
0.00
0.76
1.17
2.99
4.07
0.80
-4.81

-0.21
-0.53
0.82
-0.79
-1.05
-1.13
0.83
0.02
-3.41
-1.46
-0.95
1.06
0.98
0.96
0.18
-0.70
-1.11
0.30
-2.00

0.1088
0.6998
1.8868
0.4192
0.0000
1.7579
1.5719
0.0466
6.8306
2.3684
2.3476
3.6025
0.0000
0.7354
0.2145
-2.1016
-4.5076
0.2446
9.6129

0.2804
1.7710
5.3460
0.2781
0.0000
2.4101
3.5518
3.5627
4.0030
2.6429
6.0499
11.4819
0.0000
0.5809
1.3747
8.9440
16.5270
0.6436
23.1331

0.0422
0.2765
0.6660
0.6320
1.1122
1.2822
0.6957
0.0006
11.6558
2.1224
0.9110
1.1303
0.9542
0.9309
0.0335
0.4938
1.2294
0.0929
3.9946

OXFORD UNIVERSITY PRESS, 2008

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66

02-May-05
03-May-05
04-May-05
05-May-05
06-May-05
09-May-05
10-May-05
11-May-05
12-May-05
13-May-05
16-May-05
17-May-05
18-May-05
19-May-05
20-May-05
23-May-05
24-May-05
25-May-05
26-May-05
27-May-05
30-May-05
31-May-05
01-Jun-05
02-Jun-05
03-Jun-05
04-Jun-05
06-Jun-05
07-Jun-05
08-Jun-05
09-Jun-05
10-Jun-05
13-Jun-05
14-Jun-05
15-Jun-05
16-Jun-05
17-Jun-05
20-Jun-05
21-Jun-05
22-Jun-05
23-Jun-05
24-Jun-05
27-Jun-05
28-Jun-05
29-Jun-05
30-Jun-05
01-Jul-05

133.25
132.45
135.50
134.95
134.10
132.20
132.70
131.65
130.55
131.60
132.65
131.70
130.50
130.25
130.05
127.85
129.30
129.45
132.05
138.20
144.45
143.25
149.00
147.35
146.80
150.60
147.60
143.50
142.45
147.80
145.90
149.70
148.00
149.10
149.20
149.35
148.40
152.65
154.40
155.35
163.20
162.45
162.80
162.75
164.05
164.85

1916.75
1920.70
1942.60
1963.30
1977.50
2000.75
1994.30
1985.95
1993.15
1988.30
2012.60
1990.80
1982.75
1990.85
1992.40
2013.90
2028.60
2043.85
2074.70
2076.40
2072.40
2087.55
2087.55
2064.65
2094.25
2092.35
2092.80
2098.15
2112.40
2103.20
2090.60
2102.75
2112.35
2128.65
2123.70
2123.40
2144.35
2170.00
2187.35
2183.85
2194.35
2199.80
2169.85
2191.65
2220.60
2211.90

-3.13
-0.60
2.30
-0.41
-0.63
-1.42
0.38
-0.79
-0.84
0.80
0.80
-0.72
-0.91
-0.19
-0.15
-1.69
1.13
0.12
2.01
4.66
4.52
-0.83
4.01
-1.11
-0.37
2.59
-1.99
-2.78
-0.73
3.76
-1.29
2.60
-1.14
0.74
0.07
0.10
-0.64
2.86
1.15
0.62
5.05
-0.46
0.22
-0.03
0.80
0.49

0.75
0.21
1.14
1.07
0.72
1.18
-0.32
-0.42
0.36
-0.24
1.22
-1.08
-0.40
0.41
0.08
1.08
0.73
0.75
1.51
0.08
-0.19
0.73
0.00
-1.10
1.43
-0.09
0.02
0.26
0.68
-0.44
-0.60
0.58
0.46
0.77
-0.23
-0.01
0.99
1.20
0.80
-0.16
0.48
0.25
-1.36
1.00
1.32
-0.39

OXFORD UNIVERSITY PRESS, 2008

-2.3415
-0.1237
2.6256
-0.4325
-0.4556
-1.6658
-0.1219
0.3313
-0.3029
-0.1957
0.9751
0.7757
0.3684
-0.0783
-0.0120
-1.8255
0.8278
0.0872
3.0316
0.3816
-0.8712
-0.6073
0.0000
1.2148
-0.5351
-0.2348
-0.0428
-0.7101
-0.4970
-1.6357
0.7701
1.5137
-0.5185
0.5735
-0.0156
-0.0014
-0.6276
3.4257
0.9166
-0.0985
2.4295
-0.1141
-0.2933
-0.0309
1.0551
-0.1911

9.7727
0.3605
5.3027
0.1648
0.3967
2.0075
0.1430
0.6261
0.6981
0.6469
0.6366
0.5129
0.8302
0.0367
0.0236
2.8617
1.2863
0.0135
4.0341
21.6907
20.4524
0.6901
16.1119
1.2263
0.1393
6.7006
3.9682
7.7160
0.5354
14.1053
1.6526
6.7835
1.2896
0.5524
0.0045
0.0101
0.4046
8.2018
1.3143
0.3786
25.5339
0.2112
0.0464
0.0009
0.6380
0.2378

0.5610
0.0425
1.3001
1.1355
0.5231
1.3823
0.1039
0.1753
0.1314
0.0592
1.4936
1.1733
0.1635
0.1669
0.0061
1.1645
0.5328
0.5651
2.2783
0.0067
0.0371
0.5344
0.0000
1.2034
2.0554
0.0082
0.0005
0.0654
0.4613
0.1897
0.3589
0.3378
0.2084
0.5954
0.0541
0.0002
0.9734
1.4308
0.6393
0.0256
0.2312
0.0617
1.8536
1.0094
1.7448
0.1535

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112

04-Jul-05
05-Jul-05
06-Jul-05
07-Jul-05
08-Jul-05
11-Jul-05
12-Jul-05
13-Jul-05
14-Jul-05
15-Jul-05
18-Jul-05
19-Jul-05
20-Jul-05
21-Jul-05
22-Jul-05
25-Jul-05
26-Jul-05
27-Jul-05
29-Jul-05
01-Aug-05
02-Aug-05
03-Aug-05
04-Aug-05
05-Aug-05
08-Aug-05
09-Aug-05
10-Aug-05
11-Aug-05
12-Aug-05
16-Aug-05
17-Aug-05
18-Aug-05
19-Aug-05
22-Aug-05
23-Aug-05
24-Aug-05
25-Aug-05
26-Aug-05
29-Aug-05
30-Aug-05
31-Aug-05
01-Sep-05
02-Sep-05
05-Sep-05
06-Sep-05
08-Sep-05

164.30
162.80
163.15
158.35
158.65
158.20
158.75
156.70
155.65
156.30
159.95
159.90
160.25
158.45
161.70
165.50
164.05
164.35
166.65
174.10
171.20
167.85
167.50
165.30
161.90
160.55
161.85
169.75
168.60
171.55
172.85
168.70
167.70
166.90
164.90
162.00
161.95
163.60
162.35
166.60
165.50
167.90
169.10
166.50
165.70
166.55

2230.65
2210.75
2228.20
2179.40
2196.20
2218.85
2220.80
2204.05
2185.10
2212.55
2234.00
2237.30
2241.90
2230.50
2265.60
2291.75
2303.15
2319.10
2312.30
2318.05
2353.65
2357.00
2367.80
2361.20
2324.40
2318.70
2360.15
2380.90
2361.55
2369.80
2403.15
2388.45
2383.45
2367.85
2326.10
2322.50
2354.55
2357.05
2337.65
2367.75
2384.65
2405.75
2415.80
2422.95
2428.65
2454.45

-0.33
-0.91
0.21
-2.94
0.19
-0.28
0.35
-1.29
-0.67
0.42
2.34
-0.03
0.22
-1.12
2.05
2.35
-0.88
0.18
1.40
4.47
-1.67
-1.96
-0.21
-1.31
-2.06
-0.83
0.81
4.88
-0.68
1.75
0.76
-2.40
-0.59
-0.48
-1.20
-1.76
-0.03
1.02
-0.76
2.62
-0.66
1.45
0.71
-1.54
-0.48
0.51

0.85
-0.89
0.79
-2.19
0.77
1.03
0.09
-0.75
-0.86
1.26
0.97
0.15
0.21
-0.51
1.57
1.15
0.50
0.69
-0.29
0.25
1.54
0.14
0.46
-0.28
-1.56
-0.25
1.79
0.88
-0.81
0.35
1.41
-0.61
-0.21
-0.65
-1.76
-0.15
1.38
0.11
-0.82
1.29
0.71
0.88
0.42
0.30
0.24
1.06

OXFORD UNIVERSITY PRESS, 2008

-0.2828
0.8145
0.1697
6.4435
0.1460
-0.2925
0.0306
0.9740
0.5761
0.5246
2.2640
-0.0046
0.0450
0.5712
3.2277
2.7125
-0.4358
0.1266
-0.4103
1.1117
-2.5582
-0.2785
-0.0955
0.3661
3.2057
0.2045
1.4475
4.2913
0.5506
0.6113
1.0664
1.4686
0.1241
0.3122
2.1129
0.2722
-0.0426
0.1082
0.6289
3.3707
-0.4713
1.2831
0.2986
-0.4551
-0.1130
0.5449

0.1113
0.8335
0.0462
8.6558
0.0359
0.0805
0.1209
1.6676
0.4490
0.1744
5.4534
0.0010
0.0479
1.2617
4.2071
5.5226
0.7676
0.0334
1.9585
19.9849
2.7746
3.8290
0.0435
1.7251
4.2307
0.6953
0.6556
23.8248
0.4590
3.0615
0.5743
5.7644
0.3514
0.2276
1.4360
3.0928
0.0010
1.0380
0.5838
6.8529
0.4359
2.1029
0.5108
2.3641
0.2309
0.2631

0.7186
0.7959
0.6230
4.7966
0.5942
1.0636
0.0077
0.5689
0.7392
1.5781
0.9399
0.0218
0.0423
0.2586
2.4763
1.3322
0.2474
0.4796
0.0860
0.0618
2.3586
0.0203
0.2100
0.0777
2.4290
0.0601
3.1957
0.7730
0.6605
0.1220
1.9805
0.3742
0.0438
0.4284
3.1089
0.0240
1.9043
0.0113
0.6774
1.6580
0.5095
0.7829
0.1745
0.0876
0.0553
1.1285

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

113
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115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158

09-Sep-05
12-Sep-05
13-Sep-05
14-Sep-05
15-Sep-05
16-Sep-05
19-Sep-05
20-Sep-05
21-Sep-05
22-Sep-05
23-Sep-05
26-Sep-05
27-Sep-05
28-Sep-05
29-Sep-05
30-Sep-05
03-Oct-05
04-Oct-05
05-Oct-05
06-Oct-05
07-Oct-05
10-Oct-05
11-Oct-05
13-Oct-05
14-Oct-05
17-Oct-05
18-Oct-05
19-Oct-05
20-Oct-05
21-Oct-05
24-Oct-05
25-Oct-05
26-Oct-05
27-Oct-05
28-Oct-05
31-Oct-05
01-Nov-05
02-Nov-05
07-Nov-05
08-Nov-05
09-Nov-05
10-Nov-05
11-Nov-05
14-Nov-05
16-Nov-05
17-Nov-05

165.60
169.25
169.25
171.65
176.15
177.60
177.15
174.65
171.00
164.80
169.85
176.15
180.85
184.55
185.30
181.15
185.90
184.05
180.65
175.05
180.10
180.20
178.70
175.15
173.20
175.65
175.75
168.70
168.65
171.30
167.20
167.45
165.35
162.30
157.65
161.45
162.40
164.95
167.15
169.65
172.45
168.60
172.20
170.75
168.90
169.65

2455.45
2484.15
2500.35
2492.45
2523.95
2552.35
2567.10
2578.00
2567.30
2476.50
2477.75
2557.35
2574.85
2598.05
2611.20
2601.40
2630.05
2663.35
2644.40
2579.15
2574.05
2566.85
2589.55
2537.30
2484.40
2485.15
2468.20
2412.45
2395.45
2443.75
2394.85
2418.20
2408.50
2352.90
2316.05
2370.95
2386.75
2419.05
2461.60
2492.65
2489.10
2500.70
2548.65
2558.70
2582.75
2603.95

-0.57
2.20
0.00
1.42
2.62
0.82
-0.25
-1.41
-2.09
-3.63
3.06
3.71
2.67
2.05
0.41
-2.24
2.62
-1.00
-1.85
-3.10
2.88
0.06
-0.83
-1.99
-1.11
1.41
0.06
-4.01
-0.03
1.57
-2.39
0.15
-1.25
-1.84
-2.87
2.41
0.59
1.57
1.33
1.50
1.65
-2.23
2.14
-0.84
-1.08
0.44

0.04
1.17
0.65
-0.32
1.26
1.13
0.58
0.42
-0.42
-3.54
0.05
3.21
0.68
0.90
0.51
-0.38
1.10
1.27
-0.71
-2.47
-0.20
-0.28
0.88
-2.02
-2.08
0.03
-0.68
-2.26
-0.70
2.02
-2.00
0.98
-0.40
-2.31
-1.57
2.37
0.67
1.35
1.76
1.26
-0.14
0.47
1.92
0.39
0.94
0.82

OXFORD UNIVERSITY PRESS, 2008

-0.0232
2.5762
0.0000
-0.4480
3.3132
0.9262
-0.1464
-0.5992
0.8674
12.8234
0.1547
11.9160
1.8258
1.8434
0.2057
0.8405
2.8878
-1.2600
1.3144
7.6490
-0.5705
-0.0155
-0.7361
4.0084
2.3212
0.0427
-0.0388
9.0606
0.0209
3.1683
4.7894
0.1458
0.5031
4.2582
4.4871
5.7137
0.3921
2.1250
2.3460
1.8866
-0.2351
-1.0404
4.0942
-0.3320
-1.0184
0.3645

0.3254
4.8581
0.0000
2.0108
6.8729
0.6776
0.0642
1.9916
4.3677
13.1459
9.3901
13.7578
7.1192
4.1857
0.1652
5.0159
6.8756
0.9903
3.4126
9.6095
8.3226
0.0031
0.6929
3.9465
1.2395
2.0010
0.0032
16.0912
0.0009
2.4690
5.7287
0.0224
1.5728
3.4024
8.2086
5.8100
0.3462
2.4655
1.7789
2.2370
2.7240
4.9842
4.5592
0.7090
1.1739
0.1972

0.0017
1.3662
0.4253
0.0998
1.5972
1.2661
0.3340
0.1803
0.1723
12.5089
0.0025
10.3207
0.4683
0.8118
0.2562
0.1409
1.2129
1.6031
0.5062
6.0884
0.0391
0.0782
0.7821
4.0712
4.3468
0.0009
0.4652
5.1019
0.4966
4.0656
4.0041
0.9506
0.1609
5.3291
2.4528
5.6189
0.4441
1.8314
3.0939
1.5911
0.0203
0.2172
3.6767
0.1555
0.8835
0.6738

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204

18-Nov-05
21-Nov-05
22-Nov-05
23-Nov-05
24-Nov-05
25-Nov-05
26-Nov-05
28-Nov-05
29-Nov-05
30-Nov-05
01-Dec-05
02-Dec-05
05-Dec-05
06-Dec-05
07-Dec-05
08-Dec-05
09-Dec-05
12-Dec-05
13-Dec-05
14-Dec-05
15-Dec-05
16-Dec-05
19-Dec-05
20-Dec-05
21-Dec-05
22-Dec-05
23-Dec-05
26-Dec-05
27-Dec-05
28-Dec-05
29-Dec-05
30-Dec-05
02-Jan-06
03-Jan-06
04-Jan-06
05-Jan-06
06-Jan-06
09-Jan-06
10-Jan-06
12-Jan-06
13-Jan-06
16-Jan-06
17-Jan-06
18-Jan-06
19-Jan-06
20-Jan-06

172.65
170.40
169.45
172.30
176.95
186.70
185.65
191.70
187.65
182.10
185.95
185.60
187.60
185.65
187.95
188.00
188.95
186.30
188.50
187.60
187.10
188.35
195.40
194.55
195.60
195.10
193.10
188.95
192.35
193.40
195.10
197.20
195.10
196.25
195.05
194.80
193.50
193.25
189.05
187.70
186.65
186.60
186.05
184.60
187.65
186.40

2620.05
2602.50
2572.85
2608.60
2635.00
2664.30
2683.45
2712.00
2698.30
2652.25
2698.95
2697.95
2660.50
2662.30
2693.00
2706.70
2756.45
2776.20
2812.30
2804.55
2778.55
2810.15
2842.60
2826.20
2822.90
2835.25
2804.85
2749.60
2805.90
2794.05
2821.95
2836.55
2835.95
2883.35
2904.40
2899.85
2914.00
2910.10
2870.80
2850.70
2850.55
2833.10
2829.10
2809.20
2870.85
2900.95

1.77
-1.30
-0.56
1.68
2.70
5.51
-0.56
3.26
-2.11
-2.96
2.11
-0.19
1.08
-1.04
1.24
0.03
0.51
-1.40
1.18
-0.48
-0.27
0.67
3.74
-0.44
0.54
-0.26
-1.03
-2.15
1.80
0.55
0.88
1.08
-1.06
0.59
-0.61
-0.13
-0.67
-0.13
-2.17
-0.71
-0.56
-0.03
-0.29
-0.78
1.65
-0.67

0.62
-0.67
-1.14
1.39
1.01
1.11
0.72
1.06
-0.51
-1.71
1.76
-0.04
-1.39
0.07
1.15
0.51
1.84
0.72
1.30
-0.28
-0.93
1.14
1.15
-0.58
-0.12
0.44
-1.07
-1.97
2.05
-0.42
1.00
0.52
-0.02
1.67
0.73
-0.16
0.49
-0.13
-1.35
-0.70
-0.01
-0.61
-0.14
-0.70
2.19
1.05

OXFORD UNIVERSITY PRESS, 2008

1.0934
0.8729
0.6352
2.3370
2.7313
6.1269
-0.4042
3.4672
1.0672
5.0476
3.7227
0.0070
-1.4958
-0.0703
1.4286
0.0135
0.9288
-1.0049
1.5356
0.1316
0.2471
0.7598
4.3222
0.2510
-0.0630
-0.1118
1.0991
4.2334
3.6844
-0.2305
0.8777
0.5569
0.0225
0.9852
-0.4464
0.0201
-0.3256
0.0173
2.9350
0.5000
0.0029
0.0164
0.0416
0.5482
3.6259
-0.6984

3.1270
1.6984
0.3108
2.8288
7.2834
30.3604
0.3163
10.6199
4.4634
8.7476
4.4699
0.0354
1.1612
1.0804
1.5348
0.0007
0.2553
1.9670
1.3945
0.2280
0.0710
0.4463
14.0103
0.1892
0.2913
0.0653
1.0509
4.6188
3.2379
0.2980
0.7727
1.1586
1.1340
0.3474
0.3739
0.0164
0.4454
0.0167
4.7235
0.5099
0.3129
0.0007
0.0869
0.6074
2.7298
0.4437

0.3823
0.4487
1.2980
1.9307
1.0242
1.2364
0.5166
1.1319
0.2552
2.9126
3.1003
0.0014
1.9268
0.0046
1.3297
0.2588
3.3784
0.5134
1.6909
0.0759
0.8594
1.2934
1.3334
0.3329
0.0136
0.1914
1.1496
3.8801
4.1925
0.1784
0.9971
0.2677
0.0004
2.7936
0.5330
0.0245
0.2381
0.0179
1.8238
0.4902
0.0000
0.3747
0.0199
0.4948
4.8162
1.0993

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250

23-Jan-06
24-Jan-06
25-Jan-06
27-Jan-06
30-Jan-06
31-Jan-06
01-Feb-06
02-Feb-06
03-Feb-06
06-Feb-06
07-Feb-06
08-Feb-06
10-Feb-06
13-Feb-06
14-Feb-06
15-Feb-06
16-Feb-06
17-Feb-06
20-Feb-06
21-Feb-06
22-Feb-06
23-Feb-06
24-Feb-06
27-Feb-06
28-Feb-06
01-Mar-06
02-Mar-06
03-Mar-06
06-Mar-06
07-Mar-06
08-Mar-06
09-Mar-06
10-Mar-06
13-Mar-06
14-Mar-06
16-Mar-06
17-Mar-06
20-Mar-06
21-Mar-06
22-Mar-06
23-Mar-06
24-Mar-06
27-Mar-06
28-Mar-06
29-Mar-06
30-Mar-06

188.00
188.30
196.20
195.10
192.15
195.25
191.60
193.55
190.30
194.65
197.80
197.20
208.05
209.50
224.45
235.90
238.45
230.70
238.50
237.00
241.50
247.05
242.20
238.65
243.70
245.45
244.20
244.25
243.45
252.30
242.75
244.55
252.00
252.90
257.90
258.45
254.05
252.65
252.10
255.30
255.25
255.65
268.55
267.80
266.50
273.20

2884.05
2908.00
2940.35
2982.75
2974.50
3001.10
2971.55
2967.45
2940.60
3000.45
3020.10
3008.95
3027.55
3041.15
3017.55
3022.20
3021.60
2981.50
3005.85
3035.50
3050.80
3062.10
3050.05
3067.45
3074.70
3123.10
3150.70
3147.35
3190.40
3182.80
3116.70
3129.10
3183.90
3202.65
3195.35
3226.60
3234.05
3265.65
3262.30
3240.15
3247.15
3279.80
3321.65
3325.00
3354.20
3418.95

0.86
0.16
4.20
-0.56
-1.51
1.61
-1.87
1.02
-1.68
2.29
1.62
-0.30
5.50
0.70
7.14
5.10
1.08
-3.25
3.38
-0.63
1.90
2.30
-1.96
-1.47
2.12
0.72
-0.51
0.02
-0.33
3.64
-3.79
0.74
3.05
0.36
1.98
0.21
-1.70
-0.55
-0.22
1.27
-0.02
0.16
5.05
-0.28
-0.49
2.51

-0.58
0.83
1.11
1.44
-0.28
0.89
-0.98
-0.14
-0.90
2.04
0.65
-0.37
0.62
0.45
-0.78
0.15
-0.02
-1.33
0.82
0.99
0.50
0.37
-0.39
0.57
0.24
1.57
0.88
-0.11
1.37
-0.24
-2.08
0.40
1.75
0.59
-0.23
0.98
0.23
0.98
-0.10
-0.68
0.22
1.01
1.28
0.10
0.88
1.93

OXFORD UNIVERSITY PRESS, 2008

-0.5001
0.1325
4.6672
-0.8085
0.4182
1.4427
1.8407
-0.1404
1.5193
4.6524
1.0598
0.1120
3.4011
0.3131
-5.5377
0.7861
-0.0215
4.3133
2.7613
-0.6204
0.9570
0.8512
0.7725
-0.8362
0.5001
1.1304
-0.4501
-0.0022
-0.4480
-0.8660
7.8610
0.2950
5.3352
0.2103
-0.4506
0.2086
-0.3931
-0.5385
0.0223
-0.8618
-0.0042
0.1576
6.4386
-0.0282
-0.4263
4.8532

0.7368
0.0255
17.6017
0.3143
2.2863
2.6028
3.4946
1.0358
2.8196
5.2252
2.6189
0.0920
30.2723
0.4857
50.9230
26.0239
1.1685
10.5635
11.4313
0.3956
3.6052
5.2814
3.8540
2.1484
4.4778
0.5157
0.2594
0.0004
0.1073
13.2150
14.3276
0.5498
9.2806
0.1276
3.9088
0.0455
2.8984
0.3037
0.0474
1.6112
0.0004
0.0246
25.4617
0.0780
0.2356
6.3206

0.3394
0.6896
1.2375
2.0794
0.0765
0.7997
0.9695
0.0190
0.8187
4.1424
0.4289
0.1363
0.3821
0.2018
0.6022
0.0237
0.0004
1.7612
0.6670
0.9730
0.2541
0.1372
0.1549
0.3255
0.0559
2.4779
0.7810
0.0113
1.8709
0.0567
4.3130
0.1583
3.0671
0.3468
0.0520
0.9565
0.0533
0.9547
0.0105
0.4610
0.0467
1.0110
1.6282
0.0102
0.7712
3.7265

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

251

31-Mar-06
SUM
AVERAGE

272.00

3402.55

-0.44
76.82
0.3073

-0.48
51.20
0.2048

0.2107
256.87
1.0275

0.1929
946.44
3.7858

0.2301
276.76
1.1070

The computation of the Beta coefficient and parameter a is shown below:

Beta

XM - X M
2
n M 2 - ( M)

(X * M n) - X * M .
(M2 n) - M 2

Average of Product - Product of Avearge

Average of Square(Market) - Square of Average(Market)

1.0275 - 0.3073x0.2048 0.9645

=
= 0.9057
1.1070 - 0.2048x0.2048 1.0650
Alpha = X - M = 0.3073 - 0.9057x0.2048 = -0.1262

Figure A 9-2: Regression of HLL Returns with NIFTY

8

y = 0.9056x + 0.1218
2

R = 0.2366

HLL Return (%)

-4

-3

-2

-1

-2

-4

-6
Market Return (%)

The scatter diagram of the daily returns of the HLL and NIFTY are shown in Figure
A9-2. This has been done using the returns of HLL and NIFTY. The coefficients, a
and can further be improved in terms of reliability on them under normal
circumstances if the log returns rather than returns are plotted on the scatter

OXFORD UNIVERSITY PRESS, 2008

FINANCIAL MANAGEMENT

Appendix to Chapter 9

Rajiv Srivastava Dr. Anil Misra

diagram. By taking log of returns the affect of extreme values is decreased.

Extreme observations distort the regression line substantially. These are referred as
outliers. One way would be to ignore such observations altogether so that they
do not influence the outcome of regression. However that too would be wrong.
Instead of ignoring the extreme observations we need to reduce its impact on
the outcome. This can be achieved through plotting the log returns.
Accuracy of regression is measured by parameter called RSquared.
The value of R-Squared tells how good is the description of dependent variable is
with the independent variable through the regression line. It reflects the
percentage of the returns that can be explained by the market. In our case of
HLL with NIFTY the value of R-Squared is 0.2366. This implies that the 23.66%
variability of the security returns is attributed to market variability. The rest of the
variability is caused by company specific factors. Clearly closer the value of R
Squared to 1.00 the better is the fit. The value of one would indicate that all the
points in the scatter diagram lie exactly on the regression line and no error would
result if forecast of security return is based on the market return.
R Squared is also the square of the correlation of the security return with the
market.

OXFORD UNIVERSITY PRESS, 2008

10