Assignment 1.

Select a company out of BSE 500, (no two people should have the same company being analysed so coordinate in google docs or so). Companies that constitute BSE 500 shall be available at http://www.bseindia.com/about/abindices/bse500.asp. Thereafter click on the link Click here for list of constituents 2. For market portfolio choose nifty. 3. Download the two years daily closing data for your chosen company as well as the index. The data can be downloaded from NSE website nseindia.com (trying searching your way out to the data, should be a interesting exploration.) 4. Find the log returns for each of them and 5. Regress the log return on stock (Dependent variable Y) on the log returns on index (independent variable X). Attached alongwith is a brief note on how to run regression in MS Excel as well as how to interpret it.

Since, we had some confusion on announcement and you may need time to look at this note and understand the same, we shall extend the assignment submission deadline to 28th of May, 2011.

(A note on regression follows so continue reading this document.)

A note on running ordinary least square regression and interpreting its results in MS Excel. Excel Instructions for Regression Analysis 1. The Regression Macro (which is part of the Analysis ToolPak) is standard with Excel, however, it is not always active and available for use. Select the Tools menu, if Analysis ToolPak is active then you should see a Data Anaylsis item at the bottom of the menu. If this item is present skip to step 3. 2. If this item is not there then you need to do one easy step. Select the Add Ins option under the Tools menu, which brings up the following window.

Figure 5

Click the Analysis ToolPak checkbox, then OK. Analysis Toolpak should now be present under Tools in the future. 2. Select the Data Analysis option under the Tools menu and select the Regression option (as shown below).

Figure 6 3. Your dependent variable (y) data is in cells B1 through B11 (including the variable name or label), and your independent variable data (x) is in cells A1 through A11. Click the labels box to indicate that the first row contains the variable names, and then click ok. See Figure 7.

Figure

4. A new worksheet will appear revealing the results of your regression analysis. The results from this analysis are shown below.
SUMMARY OUTPUT

Correlation Coefficient

Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 0.8149057 0.6640713 0.6220802 1.0017919 10

Coefficient of Determination

ANOVA df Regression Residual Total 1 8 9 SS 15.87130435 8.028695652 23.9 MS 15.871304 1.003587 F 15.814578 Significance F 0.004080177

P value for Anova Test

b0
Intercept X1=Miles Traveled Coefficients 1.273913 0.0678261 Standard Error 1.400744525 0.017055637 t Stat 0.9094542 3.9767547 P-value 0.3896874 0.0040802 Lower 95% -1.95621171 0.028495691 Upper 95% 4.5040378 0.1071565

Lower 95.0% -1.9562117 0.02849569

Upper 95.0% 4.5040378 0.1071565

Interpreting Results

b1

P value for t test for X1

1. In your second model summary table, you will find the Coefficient of Determination, R2, and the Correlation Coefficient, R. 2. The ANOVA table gives the F statistic for testing the claim that there is no significant relationship between your independent and dependent variables. The sig. value is your p value. Thus you should reject the claim that there is no significant relationship between your independent and dependent variables if p<. Generally in finance, is set at 1% i.e. 0.01 or 5% i.e. 0.05. 3. The Columns below the Coefficients box gives the b0 and b1 values for the regression equation. The intercept value is always b0. The b1value is next to your independent variable, x. 4. In the last P-value column of the coefficient output data, the p values for individual t tests for our independent variable is given (in the same row as your independent variable). Recall that this t test tests the claim that there is no relationship between the independent variable and your dependent variable. Thus you should reject the claim that there is no

significant relationship between your independent variable and dependent variable if p<. (as stated earlier, Generally in finance, is set at 1% i.e. 0.01 or 5% i.e. 0.05) accordingly, it could be said that miles travelled significantly affects travel time. And the intercept i.e. travel time even if no distance is covered is insignificant. In other words you dont consume travel time unless to cover some distance. In your case you wont have the intercept. But try and interpret the beta. It may not be significant always but that may be because of other issues.