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Dynamic Portfolio Returns: Impact of Macroeconomic Variables

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Author: AFIFA NASEER

Citable URI : https://vspace.vu.edu.pk/detail.aspx?id=93

Publisher : Virtual University of Pakistan

Date Issued: 7/28/2016 12:00:00 AM

Abstract

Very few researches have constructed both naïve and diversified portfolio but none of the studies to the best of researcher’s knowledge have explored the impact of macroeconomic variables on both types of portfolio in a particular country. This study excogitates the relationship between naive and diversified portfolio expected returns and macroeconomic variables. The commodities and variables – KSE 100 index, gold rates, National Savings Certificate (NSC) profit rates, treasury bills (T-Bills) yield, deposit rates and exchange rates - Euro, Great Britain Pound and US Dollar have been considered for construction of equal weighted portfolio. The macroeconomic or explanatory variables – Producer Price Index (PPI) or Wholesale Price Index (WPI), balance of trade prices, discount rates, crude oil prices, natural gas prices and Consumer Price Index (CPI) are considered for exploring their impact on equal weighted portfolio. The commodities and variables – KSE 100 index, gold rates, National Savings Certificate (NSC) profit rates, treasury bills (T-Bills) yield, deposit rates and exchange rates - Euro, Great Britain Pound and US Dollar were considered initially from which exchange rate commodities were selected and considered for construction of diversified portfolio based on cut off rate determined from Sharpe ratio. The yields of 12 months treasury bills considered as a risk free security were used for calculating excess returns of these commodities. The macroeconomic or explanatory variables – Producer Price Index (PPI) or Wholesale Price Index (WPI), Foreign Direct Investment (FDI), balance of trade prices, discount rates and crude oil prices were considered for exploring their impact on optimal or diversified portfolio. Monthly data of all these variables was examined from January 2000 to October 2015. The assumptions of Classical Linear Regression Model (CLRM) were met before running the Ordinary Least Square (OLS) model. It was found that expected returns of both portfolios are significantly and positively affected by discount rates and wholesale price index and negatively and insignificantly affected by balance of trade (BOT).


URI : https://vspace.vu.edu.pk/details.aspx?id=93

Citation: Naseer, A. (2016). Dynamic Portfolio Returns: Impact of Macroeconomic Variables. Virtual University of Pakistan, (Lahore, Pakistan).

Version : Final Version

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