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CHAPTER 8
to the SPSS software for the Initial analysis. Overall, there were 18 criteria,
which were having an impact on the performance of the Open Ended Equity
output with all the 18 Criteria would lead to a very lengthy model. To counter
the same, the Factor Analysis was used for the data reduction. For the data
reduction the feedback was taken from Fund Manager / Assistant Fund
The Factor Analysis was applied for the identification of the core factors
used to reduce large number of variables into a few numbers of core factors.
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Test Adequacy of Sample
between 0 and 1. The values closer to 1 are better and the value of 0.6 is the
suggested minimum. The Bartlett's Test of Sphericity is the test for null
hypothesis that the correlation matrix has an identity matrix. Taking this into
Factor Analysis.
Scheme.
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SPSS Output :
Df 153
Sig. .000
Here, KMO = 0.702 which indicates that the sample is adequate and we may
The p-value (Sig.) of .000 < 0.05, therefore the Factor Analysis is valid
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As p < α, we therefore reject the null hypothesis H0 and accept the alternate
between variable.
The initial components are the numbers of the variables used in the Factor
Analysis. However, not all the 18 variables will be retained. In the present
variables. The Eigen values are the variances of the factors. The total
column contains the Eigenvalue. The first factor will always account for the
most variance and hence have the highest Eigen values. The next factor will
account for as much of the left over variance as it can and the same will
continue till the last factor. The percentage of variance represents the percent
gives the cumulative percentage of variance account by the present and the
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preceeding factors. In the present research the first 4 factors explain 75.95%
of variance.
The rotation sums of the squared loading represent the distribution of the
variance after the varimax rotation with Kaiser Normalisation. The varimax
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SPSS Output :
been extracted. Each factor is constituted of all those variables that have
factor loadings greater that 0.5. 18 variables were clubbed into 4 factors. 4
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factors were extracted from the 18 variables used in the study. These 4
the variability.
Scree Plot
The scree plot graphs the Eigenvalue against the each factor. We can see
from the graph that after factor 4 there is a sharp change in the curvature of
the scree plot. This shows that after factor 4 the total variance accounts for
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SPSS Output :
Scree Plot
10
4
Eigenvalue
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Component Number
The Rotated Factor Matrix represents the rotated factor loadings, which are
the correlations between the variables and the factors. The factor column
represents the rotated factors that have been extracted out of the total factor.
These are the core factors, which have been used as the final factor after data
named which will represent the grouped factor and represent the factors.
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SPSS Output :
Component
1 2 3 4
Returns of 3 Year Period -.188 -.241 .740 -.256
Mean Return 8.439E-
.307 .755 .267
02
Standard Deviation of the
-.017 .187 .711 -.382
Returns
Coefficient of variation of the
.255 .638 .345 .380
returns
NAV percentage change in
.138 -.288 .755 .159
the 3 Year Period
Geometric mean of the
Excess Return of the 7.878E-02 .380 -.042 .834
Benchmark
Value at Risk (VAR) .343 .579 .439 .104
Sharpe Index 1.133E-
.166 .750 .292
02
Modigliani Measure .490 .656 -.112 .117
Information Ratio .319 .537 -.129 .328
Beta Coefficient β .159 .721 -.032 -.235
Treynor Index .487 .693 -.147 .143
Jensen Alpha α Coefficient .150 .758 -.203 .197
Treynor & Mazuy's α 7.801E-
.943 .257 .105
Coefficient 02
Treynor & Mazuy's γ 9.578E-
.908 .235 .143
Coefficient 02
Henriksson & Merton's α 8.225E- 6.900E-
.951 .196
Coefficient 02 02
Henriksson & Merton's γ 5.697E-
.936 .208 .118
Coefficient 02
Treynor & Black Appraisal
.903 .293 -.017 -.012
Ratio
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
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The above matrix gives the correlation of the variables with each of the
extracted factors. Usually, each of the variables is highly loaded in one factor
and less loaded towards the other factors. To identify the variables, included
in each factor, the variable with the value maximum in each row is selected to
be part of the respective factor. The values have been highligtened in each of
Thus, after rotation, Factor 1 accounts for 29.44% of the variance; Factor 2
accounts for 23.42% of the variance; Factor 3 accounts for 14.67% of the
variance; Factor 4 accounts for 8.42% of the variance. All the 4 factors
Equity Scheme.
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Name of the four core factors
The variables that have been included into each core factor have been named
as under: -
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Conclusions of Factor Analysis
The Factor Analysis has thus identified 4 core factors that affect the
as under: -
2 Risk Management
This factor suggests the market timing skill and security selection ability of the
Fund Managers. The first factor explains 29.44 % of the variability on the
performance of the Open Ended Equity Scheme. It is necessary for the Fund
Managers to have a superior Market Timing Skill and the Security selection
ability to out performance the benchmark. Similarly, this is the core factor,
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Factor 2 – Risk Management
The second factor relates to the market risk management. This factor
Equity Scheme. Equity Schemes are more risky and depends on the stock
markets for its performance. Thus the Fund Managers have to obviously take
The third factor characterizes the existing returns of the Open Ended Equity
Scheme. It is always said that those schemes, which perform better, tend to
perform better in the future. This factor explains 14.67% of the variability on
This result is in conformity with that of Hendricks et al, 1994, Brown and
Goetzman, 1995 who have found evidence supporting the idea that past
The fourth factor characterizes the excess return over the benchmark. This
factor explains 8.42% of the variability on the performance of the Open Ended
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Equity Scheme. An Open Ended Equity Scheme has to outperform the
Benchmark and generate higher returns than the Benchmark so that its
performance is better.
.901
Risk • Coefficient of Variations of the
Management Returns .735
• Value At Risk (VAR)
• Sharpe Index .656
• Modigliani Measure .676
• Information Ratio .697
• Beta Coefficient (β) .514
• Treynor Index .601
.760
• Jensen Alpha α Coefficient
.677
Existing • Returns of 3 Year Period .707
Returns of • Mean Return .743
the Schemes • Standard Deviation of the Returns .687
(At • NAV percentage change in the 3 .697
Beginning) Year Period
Excess • Geometric Mean of the Excess .848
Return over Return over the Benchmark
Benchmark
(At
Beginning)
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Based on above factor loadings, the variables within each extracted factor
were identified for further Discriminant Analysis. This data was framed into a
values.
The Part B of the questionnaire was on the factors that lower risk vis-à-vis the
systematic risk and the unsystematic risk. The same scale of 1 to 6 was
market risk or systematic risk on the one hand and appraisal or insurable risk
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Systematic Risk
The systematic risk is also referred to as the market risk and cannot be
diversified. It refers to the movement of the whole market. Even if the Fund
avoided, and this is known as the systemic risk. The systemic risk is not the
Unsystematic Risk
Unlike the systematic risk, the unsystematic risk is a specific risk, specific to
and is associated with factors like the business and financial risk.
There was 18.75% mortality from the Part A of the questionnaire to the Part B
As the response rate was high, it was felt that we may proceed with the
This data was again framed on the SPSS software for further analysis and
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collected in the part B of the questionnaire in the primary data. There were
two attributes in this data viz factor that lower risk viz the Systematic Risk and
Statistics
The N value gives the Valid and Missing number of the valid observations for
respondent gave 26 feedback and 6 of the respondent did not give the
feedback. The mean value viz the arithmetic mean across the observation for
the systematic and non-systematic means is the most widely used central
tendency. The mean for both these criteria has come out to be exactly
2.9615, as the central tendency, which connotes that both the systematic risk
and the non-systematic risk are equally important factor after lower risk, which
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Going by the mode weightage, however it was felt at the systematic risk is a
portfolio.
Remarks
The questionnaire was a semi structured questionnaire wherein the part 'C' of
the questionnaire was on any other useful inputs or remarks that the Fund
Managers would like to contribute towards the present research. There were
few feedback, which was related to the present research. The feedback have
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mid cap / small cap will influence returns or sector preference would
preferred.
All the above input on performance was considered as valid in context to the
present research. Largely, it has been seen that the existing returns have
been considered as the influential factor for the future performance of the
scheme. The returns over a benchmark / peer group was the factor which
benchmark was taken as the BSE Sensex, which again endorses the views
also a factor to be looked into, the mean return however gives the mean of the
3 years and therefore these views were also taken care in the present
research.
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