Portfolio Analysis

Joanna Pimento
5/16/2013

1. Executive Summary
The Project analyzes the various factors affecting the Exchange Traded Funds offered by Motilal
Oswal Asset Management Company. The aim of this project was to develop a model using
Regression Analysis that would explain the correlation between various variables and the ETFs.
The analysis mainly tested the significance of interest rates, GDP, Inflation and equity Indices on
the ETFs.
ETF NAVs, Daily Returns on the underlying Indices and the Index Values were used as
dependant variables in individual regression models. The CRISIL G10 Values, CCIMIBOR,
Inflation and GDP were the main predictors. The regression results focused on comparing RSquare, Adjusted R-Square, and P-Values of the regression coefficients.
Using Microsoft Office Excel and Minitab, the analysis began with simple linear regression
models, then added and modified variables into multiple regression models and finally
concluded with Lagged Distributed regression models.

Contents
1. Executive Summary. 2
2. Analysis of ETF NAVs.. 4
2.1. Most Shares M50 4
3. Analysis of Index Values Of the Benchmark Index 5
3.1. NIFTY INDEX Analysis 5
4. Analysis of Daily Returns on the Benchmark Index. 6
4.1. NIFTY Daily Returns.. 6
4.2. CNXMCAP Daily returns. 7
4.3. NASDAQ Daily Returns 7
4.4. Gold Daily returns.. 7
5. Lagged Distributed Models. 8
6. Time Series Plots.. 10
6.1. NIFTY v/s CCIMIBOR without Time Lag. 10
6.2. NIFTY v/s CCIMIBOR with Time Lag. 11
7. Autoregressive Models 12
7.1. NIFTY Daily Returns. 12
7.2. CNXMCAP Daily Returns. 12
8. Comparison of Regression Models. 13
9. Conclusion. 15
10. References 16

2. Analysis of ETF NAVs

Objective: To determine the significance of interest rates, inflation, GDP and Gold Commodity
on the Net Asset Values of Most Shares M50.
Methodology:

Data for a period of 2 years is collected and suitably interpolated for missing values.
Using Excel, the NAV Values of the ETF is independently regressed with the above
mentioned variables.
The Level Of significance is set at 0.05.
If the P-values of the regression coefficients are lower than 0.05 we reject the null
hypothesis that the coefficient is zero, thus concluding our coefficient is statistically
significant.

Most Shares M50

Period: March 2011- Feb2013
Response Variable: M50 NAVs
Predictor Variables: CCIMIBOR, CRISIL G10 INDEX, CRISIL G10 RETURNS, MONTHLY INFLATION, GDP,
GOLD Commodity.

Results
Predictors
CCIMIBOR
CRISIL G10 INDEX
INFLATION
GDP
GOLD Commodity

Correlation
45.06%
46.27%
14.86%
3.56%
11.99%

R square
20.30%
21.41%
2.21%
0.13%
1.44%

Intercept
103.38
16.24
79.88
69.77
79.78

P-Values
9.83E-153
0.001
5.49E-09
0.13
1.54E-138

Coefficient/slope
-3.63
0.03
-0.73
0.0002
-7.23E-05

P-Values
4.02E-26
1.25E-27
4.88E-01
0.94
0.007

CRISIL G10 INDEX has the highest correlation with M50 NAVS.
The Highest R-Square value suggests that the regression model using CRISIL G10 INDEX is better
suited for the analysis when compared with the other variables.
The intercept column gives the predicted value of M50 NAVS, if the predicted variables were
forecasted to be zero.
From the P-values we conclude that excluding GDP all other variables are statistically significant.
Inflation and CCIMIBOR have a negative relationship withM50 NAVs, while the other variables
will positively influence on M50 NAVs.
The slope column gives values of M50 NAVs when the predictor variable changes by one unit.
Again the P-values indicate that excluding GDP all other variables are statistically significant.
4

3. Analysis of the Index Values

Objective: To determine the significance of interest rates, inflation, GDP and Gold Commodity
on the Values of the benchmark Index.
Methodology:

Data for a period of 5 years is collected and suitably interpolated for missing values.
Using Excel, the Index values itself is independently regressed with the above
mentioned variables.
The Level Of significance is set at 0.05.
If the P-values of the regression coefficients are lower than 0.05 we reject the null
hypothesis that the coefficient is zero, thus concluding our coefficient is statistically
significant.

NIFTY Index
Period: March 2008- Feb2013
Response Variable: NIFTY Index
Predictor Variables: CCIMIBOR, CRISIL G10 INDEX, CRISIL G10 RETURNS, MONTHLY INFLATION, GDP,
GOLD Commodity.

Results
Predictors
CCIMIBOR
CRISIL G10 INDEX
CRISIL G10 Returns
INFLATION
GDP
Gold Commodity

Correlation
19.71%
39.66%
3.26%
35.86%
63.73%
56.25%

R square
3.88%
15.73%
0.11%
12.86%
40.61%
31.64%

Intercept
4451.68
659.58
4942.80
4152.78
-159.21
3369.46

P-Values
2.59E-12
0.02
0.00
4.81E-21
0.92
3.20E-292

Coefficient/slope
74.58
2.16
-6183.73
101.97
0.42
0.03

P-Values
2.59E-12
6.27E-48
0.25
0.005
0.003
2.71E-104

GDP has the highest correlation with NIFTY INDEX.

The Highest R-Square value suggests that the regression model using GDP is better suited for the
analysis when compared with the other variables.
The intercept column gives the predicted value of the NIFTY INDEX, if the predicted variables
were forecasted to be zero.
The zero P-values for CCIMIBOR, CRISIL G10 Returns, CRISIL G10 INDEX, INFATION and GOLD
suggest that the intercept values are statistically significant.
However the GOLD Commodity slope coefficient is most significant in the analysis.
5

4. Analysis of Daily Returns on the underlying Index

Objective: To determine the significance of interest rates, inflation, GDP and Gold Commodity
on the Daily returns on the benchmark Index.
Methodology:

Data for a period of 5 years is collected and suitably interpolated for missing values.
Using Excel, the daily returns on each Index are independently regressed with the above
mentioned variables.
The Level Of significance is set at 0.05.
If the P-values of the regression coefficients are lower than 0.05 we reject the null
hypothesis that the coefficient is zero, thus concluding our coefficient is statistically
significant.
i) NIFTY Daily Returns

Period: March 2008- Feb2013

Response Variable: Daily Returns on NIFTY
Predictor Variables: CCIMIBOR, CRISIL G10 INDEX, CRISIL G10 RETURNS, WPI MONTHLY INFLATION, GDP
(Quarterly), GOLD Commodity
Results:
Predictors
CCIMIBOR
CRISIL G10 INDEX
CRISIL G10 Returns
INFLATION
GDP
GOLD Commodity

Correlation
5.00%
4.40%
3.87%
34.12%
10.95%
0.22%

R square
0.25%
0.19%
0.15%
11.64%
1.20%
0.0005%

Intercept
0.26%
-0.95%
0.00%
0.35%
-0.25%
0.02%

P-Values
0.09
0.13
0.94
0.02
0.66
0.63

Coefficient/slope
-0.04%
0.0005%
14.67%
-0.05%
0.000021%
5.197E-10

P-Values
0.08
0.12
0.17
0.01
0.66
0.94

4. Inflation has the highest correlation with NIFTY daily Returns.

5. The Highest R-Square value suggests that the regression model using inflation is better suited for the
analysis when compared with the other variables.
6. The intercept column gives the predicted value of the daily returns on NIFTY, if the predicted
variables were forecasted to be zero.
7. From the P-values we conclude that only inflation is statistically significant in our analysis.
8. Inflation and CCIMIBOR have a negative relationship with NIFTY daily returns, while the other
variables will positively influence NIFTY returns.
9. The slope column gives the change in NIFTY returns when the predictor variable changes by one
unit. Again the P-values indicate only inflation to be statistically significant.
6

ii.

CNXMCAP Returns

Response Variable: Daily Returns on CNXMCAP

Results:
Predictors
CCIMIBOR
CRISIL G10 INDEX
CRISIL G10 Returns
INFLATION
GDP
iii.

Correlation R square Intercept

10.24%
1.05%
0.005
5.02%
0.25%
-0.010
5.41%
0.29%
0.000
38.06%
14.48%
0.005
7.63%
0.58%
-0.002

P-Values
0.0006
0.080
0.98
0.006
0.78

Coefficient/slope
-0.07%
0.0005%
18.36%
-0.06%
0.000018%

P-Values
0.0003
0.078
0.06
0.003
0.76

P-Values
0.06
0.65
0.18
0.01
0.33

Coefficient/slope
-0.03%
0.0002%
-9.80%
-0.02%
0.000035%

P-Values
0.13
0.58
0.35
0.03
0.26

Correlation R square Intercept P-Values

Coefficient/slope
4.36%
0.19%
0.002
0.05
-0.03%
0.12% 0.0001%
0.000
0.93
0.00001%
3.21%
0.10%
0.001
0.08
-9.50%
5.77%
0.33%
0.000
0.86
0.01%
6.48%
0.42%
0.001
0.52
-0.000004%

P-Values
0.13
0.97
0.26
0.66
0.79

NASDAQ Returns

Response Variable: Daily Returns on NASDAQ

Results:
Predictors
CCIMIBOR
CRISIL G10 INDEX
CRISIL G10 Returns
INFLATION
GDP
iv.

Correlation R square Intercept

4.35%
0.19%
0.003
1.57%
0.02%
-0.003
2.68%
0.07%
0.001
28.42%
8.07%
0.002
27.34%
7.47%
-0.004

Gold Returns

Response Variable: Daily Returns on NASDAQ

Results:
Predictors
CCIMIBOR
CRISIL G10 INDEX
CRISIL G10 Returns
INFLATION
GDP

5. Lagged Distributed Models

Objective: To study the relationship between timed lagged values of the variables in
consideration.
Methodology:

NIFTY daily Returns are regressed with lagged values of CCIMIBOR.

Each CCIMIBOR Lag Value is treated as an independent Variable.
The first Model consisted of 16 independent variables regressed with NIFTY daily returns.
The regression equation is
NIFTY = 0.00424 + 0.00320 Lag 1 + 0.00137 Lag 2 - 0.00180 Lag 3 - 0.00170
Lag 4- 0.00171 Lag 5 + 0.00290 Lag 6 + 0.000261 Lag 7 - 0.00162 Lag80.000778 Lag 9 - 0.00290 Lag 10 + 0.00112 Lag 11 + 0.00149 Lag 12
- 0.00202 Lag 13 + 0.00155 Lag 14 - 0.000599 Lag 15 + 0.000615 Lag16

The adjusted R-Square, P Values of the Maximum Lag term Coefficient, The Akaike information
criteria and the Schwartz information criteria are used to analyze the model.

If the model was found to be inadequate, the Lag (q) was reduced by 1 and a new model consisting
of q-1 variables is then tested until the lowest p-value was obtained.

Results
LAG (q Days)

R-SQUARE

Adjusted R-Square

LAG 16
8.1%
6.9%
LAG 15
8.1%
6.9%
LAG 14
8.1%
7.0%
LAG 13
7.7%
6.7%
*AIC: Akaike Information Criteria
SIC: Schwarz Information Criteria

P-Value Of q Coefficient
0.382
0.713
0.033
0.108

AIC*

SIC*

0.000271
0.000271
0.000270
0.000273

0.000291
0.000289
0.000288
0.000289

Inference:
From the table above the P-value of the 16th coefficient is greater than 0.05. Hence we cannot
reject the null hypothesis and the variable is dropped from the model.
In a similar way by the above tabulated results, the regression model with 15 lagged variables
is also rejected.
The best suited regression model consists of 14 lagged variables giving a r-Square of 8.1% .The
increase in the adjusted R-Square value suggests that the dropping the LAG 15 and LAG 16 is
better suited for the analysis.

The regression equation is

NIFTY = 0.00429 + 0.00308 Lag 1 + 0.00149 Lag 2 - 0.00185 Lag 3 - 0.00169
Lag4- 0.00169 Lag 5 + 0.00291 Lag 6 + 0.000270 Lag 7 - 0.00164 Lag 8- 0.000772
Lag 9 - 0.00285 Lag 10 + 0.00117 Lag 11 + 0.00144 Lag 12- 0.00199 Lag 13 +
0.00148 Lag 14

Since the P-Value of the 14th coefficient is less than 0.05 we keep the variable in the model.
If the Lag 14 variable was dropped, the adjusted R-Square of the LAG 13 Model decreases
suggesting that the dropped variable reduced the efficiency of the model.
Lastly comparing the AIC and SIC the LAG 14 model having lowest AIC and SIC is best suited for
the analysis.

Calculations:

Model
LAG 16
LAG 15
LAG 14
LAG 13

Total Obs Regressors

RSS
(n)
(K)
2K/N
0.322324
1222
17 0.02782324
0.322549
1223
16 0.02616517
0.322644
1224
15 0.0245098
0.326837
1225
14 0.02285714

AIC=

RSS/N
0.00026
0.00026
0.00026
0.00027

AIC
K/N
0.000271 0.013912
0.000271 0.013083
0.000270 0.012255
0.000273 0.011429

N^(K/N)
1.103942
1.097467
1.091039
1.084658

SIC
0.000291
0.000289
0.000288
0.000289

SIC= /

6. Time-Series Plots
Objective: To compare models Time lagged Models with Simple Linear models with the help of Time
Series Plots.
1. NIFTY Daily Returns Regressed with CCIMIBOR (NO TIME LAG)
R-Square: 0.25%

Known NIFTY returns plotted along with Predicted NIFTY Returns obtained from the
regression model using CCIMIBOR (without lag) as the independent variable.
Time Series Plot of NIFTY Returns, Predicted NIFTY Returns
0.20

Variable
NIFTY Returns
Predicted NIFTY Returns

0.15
0.10
0.05
0.00
-0.05
-0.10
08
20
/
3
3/

08
09
10
09
10
11
20
20
20
20
20
20
/
/
/
/
/
/
2
10
12
17
13
10
9/
9/
3/
3/
9/
3/
Date

11
20
/
8
9/

12
20
/
7
3/

12
20
/
4
9/

NIFTY Daily Returns predicted from the regression model do not follow the same trend as the known
NIFTY Returns. This Model is not suitable for the analysis.

10

2. NIFTY daily Returns Regressed with CCIMIBOR (LAG 14 Model)

R-Square: 8.1%

Known NIFTY returns plotted along with Predicted NIFTY Returns obtained from the
regression model using CCIMIBOR (with a 14 day lag) as the independent variable.

Time Series Plot of NIFTY, Predicted NIFTY

0.20

Variable
NIFTY Returns
Predicted NIFTY Returns

0.15

Data

0.10
0.05
0.00
-0.05
-0.10

8
8
9
9
0
0
1
1
2
2
3
00
00
00
00
01
01
01
01
01
01
01
2
2
2
2
2
2
2
2
2
2
2
/
/
/
/
/
/
/
/
/
8/
5/
26
19
26
23
26
17
14
29
22
9/
3/
3/
9/
3/
9/
3/
3/
9/
8/
2/
Date

In comparison to the earlier Time series Plot (with no time lag), NIFTY Returns predicted from
the Lag 14 Model are closer to the known NIFTY Returns.
Conclusion:

The Regression model using a 14 day lag period for the CCIMIBOR values as independent
variables is better suited for the analysis on NIFTY Returns as compared to a model with no time
lag.

11

7. Autoregressive Models
Objective: To determine the significance of lagged values of the dependant variable in the regression
equation.
Methodology:
Lagged values of the dependant variable ranging from lag 1 to lag 15 are added to the Regression
equations obtained above.
Results:
Dependant Variable: NIFTY Daily Returns
Independent Variables
CCIMIBOR Lag 7, CRISIL G10 Lag 14
CCIMIBOR Lag 7, CRISIL G10 Lag 14, NIFTY Lag 1
CCIMIBOR Lag 7, CRISIL G10 Lag 14, NIFTY Lag 1, NIFTY Lag 2
CCIMIBOR Lag 7, CRISIL G10 Lag 14, NIFTY Lag 1, NIFTY Lag 2,Nifty Lag 3
Dependant Variable: CNXMCAP Daily Returns
Independent Variables
CCIMIBOR LAG 10,CRISIL G10 LAG 14
CCIMIBOR LAG 10, CRISIL G10 LAG 14,CNXMCAP LAG 1
CCIMIBOR LAG 10, CRISIL G10 LAG 14,CNXMCAP LAG 1-LAG2
CCIMIBOR LAG 10, CRISIL G10 LAG 14,CNXMCAP LAG 1-LAG3

R-Square
Adjusted R-Square
0.80%
0.60%
0.90%
0.70%
1.00%
0.70%
1.00%
0.60%

R-Square

Adjusted R-Square

2.8%

2.6%

2.9%

2.7%

3.0%

2.6%

3.0%

2.6%

Based on all of the above analysis using linear, multiple and lagged distribute models the following
models are setup in conclusion

12

1. Comparison of Regression Models

Model 1: Dependant Variable: CNXMCAP Daily Returns
Independent Variable: Lagged NIFTY Daily Returns
Table 8.1
Independent Variables
R-Square
Adjusted R-Square
Nifty Lag 1- Nifty Lag 15, Lag 30, Lag 60
5.40%
Nifty Lag 1- Nifty Lag 15, Lag 30
5.40%
Nifty Lag 1- Nifty Lag 15
5.40%
Nifty Lag 1- Nifty Lag 14
5.40%
Nifty Lag 1- Nifty Lag 13
5.10%
Nifty Lag 1- Nifty Lag 12
5.10%
Nifty Lag 1- Nifty Lag 11
5.00%
Nifty Lag 1- Nifty Lag 10
5.00%
Nifty Lag 1- Nifty Lag 9
4.80%
Nifty Lag 1- Nifty Lag 8
4.60%
Nifty Lag 1- Nifty Lag 7
4.20%
Nifty Lag 1- Nifty Lag 6
4.00%
Nifty Lag 1- Nifty Lag 5
3.90%
Nifty Lag 1- Nifty Lag 4
3.90%
Nifty Lag 1- Nifty Lag 3
4.00%
Nifty Lag 1-Nifty Lag 2
3.30%
Nifty Lag 1
2.80%

4.00%
4.20%
4.20%
4.30%
4.10%
4.20%
4.10%
4.20%
4.10%
4.00%
3.70%
3.60%
3.60%
3.60%
3.70%
3.10%
2.80%

Compare the colored models from table 8.1 with the corresponding models in table8.2.
Table 8.2
Independent Variables
NIFTY Daily Returns (No lag)
NIFTY (No Lag), Nifty Lag1- Nifty Lag 14
NIFTY (No lag),Nifty Lag 1- Nifty Lag 10
Nifty No Lag, Nifty Lag 1- Nifty Lag 3
Nifty No Lag, Nifty Lag 1- Nifty Lag 2

R-Square
Adjusted R-Square
75.10%
78.50%
78.50%
78.30%
77.50%

75.10%
78.20%
78.30%
78.20%
77.40%

Inference: The NIFTY Daily Returns without any Time LAG are largely significant in the analysis.

13

 Model 2
Dependant Variable: CNXMCAP Daily Returns
Independent Variable: NIFTY, CCIMIBOR LAG 10, CRISIL G10 LAG 14
The regression equation is
CNXMCAP = 0.00083 + 0.759 Nifty - 0.000308 CCIMIBOR LAG 10+ 0.000001 CRISIL G10 LAG 14
R-Sq = 75.3%
R-Sq(adj) = 75.3%

Model 3
Dependant Variable: CNXMCAP Daily Returns
Independent Variable: NIFTY, CCIMIBOR, CRISIL G10
The regression equation is
CNXMCAP = - 0.00122 + 0.772 Nifty - 0.000419 CCILMIBOR + 0.000002 CRISIL G10 INDEX
R-Sq = 75.5%
R-Sq(adj) = 75.5%
Model 4
Dependant Variable: NIFTY Daily Returns
Independent Variable: CNXMCAP, CCIMIBOR LAG 14, CRISIL G10 LAG 7
The regression equation is
NIFTY = - 0.00274 + 0.000200 CCIMIBOR LAG 14 + 0.000001 CRISIL G10 LAG 7+ 0.986CNXMCAP
R-Sq = 0.8%
R-Sq(adj) = 0.6%

14

9. Conclusion
The R-Square values obtained in the analysis were relatively low until another equity index was added to
the regression model. The linear models explained at the start attained a maximum R-Square of 21%
when the NAVs of the ETFs were used as dependant variable. When the Daily Returns on the underlying
index were regressed the maximum R-square value was 15% and using the Index values itself as the
dependant variable explained 40% influence of the predictors.
However when time lagged values of the predictors were used in the regression, model efficiency
increased by approximately 8%. A 14day Lag in CCIMIBOR influenced NIFTY Returns to a larger extent
than CCIMIBOR without lag. Autoregressive models did not approach a R-Square greater than 5%
indicating lagging the dependant variable was not significant.
Finally when NIFTY Returns were added to the model having CNXMCAP as the dependent variable an
R-Square of 75% was obtained clearly indicating a strong relation of the two indices. Lagging the values
of NIFTY Returns in the model is not appropriate for the analysis as indicated by Model 1. As model 3
suggest lagging values of interest rates has a negligible change in model efficiency suggesting the central
parameter is the NIFTY index to explain variation in CNXMCAP Returns.
In conclusion Interest rates, GDP, inflation do not have a very strong influence on Index Returns. A
regression model consisting of these parameters is not efficient to understand factors affecting ETFs.
Variation in CXMCAP Daily Returns is most efficiently explained by NIFTY Daily Returns.

15

10.

References

Books:
Gujarati, Damodar N: Basic Econometrics, 4th Edition, Tata McGraw Hill
Koop, Gary: Analysis of Economic Data, 3rd Edition.
Abner, David J.: The ETF Handbook: How to Value Exchange Traded Funds, Wiley Finance

Google Scholar:
1. Pricing Efficiency of Exchange Traded Funds- Pavel Prusevic
2. The pricing Of China region ETFs- An empirical Analysis-

-Yao Zheng- University of New Orleans

-Eric Osmer-University of New Orleans
3. A Cost-Performance Analysis of Exchange Traded Funds: Evidence from iShares
By Gerasimos G. Rompotis_

Websites:

Motilal Oswal Asset Management Company.

http://www.motilaloswal.com/Asset-Management
http://www.mostshares.com
Wikipedia
http://en.wikipedia.org/wiki/Bayesian_information_criterion
http://en.wikipedia.org/wiki/Akaike _information_criterion
Pearson Education
http://www.aw-bc.com/info/studenmund/Chapter6.pdf
Office of the Economic Advisor
http://eaindustry.nic.in/Key_Economic_Indicators/Key_Economic_Indicators.pdf
Investopedia
http://www.investopedia.com/university/advancedbond/advancedbond5.asp
CRISIL
http://crisil.com/capital-markets/10yr-gilt-index.html
Data Source:

Office of the Economic Advisor: http://eaindustry.nic.in/

RBIs Database Warehouse: http://dbie.rbi.org.in
16