Down Turn GDP

Hyper inflation

Taxes

Producer Price Index

Government policy

**International Investment, Inc.**

**Ground Rules**

Please hold all questions, comments, and concerns until the end.

For questions, please write down the slide numbers.

If you cannot hear us please raise your hands, and we will speak louder.

Place all cellular devices on silent.

Agenda

Background

International Investment, Inc. (International) provides global financial services to businesses and individuals.

It invests in international markets, primarily by buying and selling stocks, on the New York, London, and Tokyo exchanges.

As an employee, we have been asked to evaluate a proposed method of global investing.

The firm will use our study as a basis for recommending global investments to its clients

**Team 7, Case 4:**

Yilong Wang

Chenjun Feng

Simran Bhinder

Vardui Sultanyan

Laura Rodriguez

Miguel Gomez

Yilong Wang

Chenjun Feng

Simran Bhinder

Vardui Sultanyan

Laura Rodriguez

Miguel Gomez

What is Mean & Standard Deviation?

Hypothesis Test

Ho: µ = 0 <--- Null Hypothesis

mean % change in stock market Indices Is not significantly different from 0

Ha: µ ≠ 0 <--- Alternative Hypothesis

mean % change in stock market Indices Is significantly different from 0

t test used since number of observations is < 30

11

x = % change in interest rates

y = % change in market indices

**Interest rates effect on Martket**

Regression Analysis

Additional Macroeconomic variables to consider

R- value: - 0.518

There is a correlation, but not very strong.

Negative relationship.

R² -value : 0.268

27% of the variability in market indices can be accounted for by the variation in interest rates.

Small relationship between the variables

P-value: .027

Reject the null

Hypothesis Test

Ho: µ = 0 <--- Null Hypothesis

mean % change in interest rates Is not significantly different from 0

Ha: µ ≠ 0 <--- Alternative Hypothesis

mean % change in interest rates Is significantly different from 0

t -test is used again

From t- test we find:

df = 17 (for both)

The critical value at a .05 significance =

2.11

-mean: an average; a numerical value that in some sense represents the central value of a set of numbers.

www.thefreedictionary.com

Statistical Analysis

% Change in Market Indices

Mean 30.5

Standard Deviation 14.55

% Change in Interest Rate

Mean 97.2

Standard deviation 251.75

-Standard deviation is a statistical measurement of how far a variable quantity, such as the price of a stock, moves above or below its average value.

Simran

Scatter Plot W/O Japan

Regression Analysis W/O Japan

R - value: - 0.348

Has a negative relationship

Moderately weak correlation

R² - value: 0.121

12% of the variability in market indices can be accounted for by the variation in interest rates

Small relationship between the variables

P-value: 0.1711

Not significantly different than zero

So What Does This Mean?

Because of the low R² -value and the high P-value:

Unable to explain variation

We would have to consider additional factors that may contribute to the change in market indices.

What Does This Mean?

Usually a measurable economic factor that changes before the economy starts to follow a particular pattern or trend

Definition: the macroeconomic variables that tend to increase earlier.

Example: consumer expectations, money supply, CPI( consumer price index)

Inflation Rate Analysis

19

Government and Legislative Process

the rules and regulation pertaining to the entry and operations of investors in that country

Efficiency of local markets

include cost of labor force, the number of people available for work

Exchange Rate

an exchange rate is the rate at which one nation's currency that can be exchanged for that of another country

Overall Political Stability

More barriers to foreign investment under a political instability, higher risk for foreign investors.

We reject the null hypotheses and there is no significant relationship between market indices and inflation rate.

Regression Coefficient

R-Square

We determine there is 24% variability between % change in market indices and % change in inflation rates.

The P-value is 0.0397 or 0.04

R-Square is 0.2386 or 0.24.

For every 1% increase in inflation rate, there is a 2.5% increase in % change in market indices. There is a positive relationship between both.

Change in Market:23.036

Inflation Rate :2.54

1

3

2

4

5

6

7

8

12

13

15

16

17

1 8

19

21

23

24

26

Inflation in foreign countries will definitely have an effect on the U.S investor's profit.

If inflation goes up, so does the market. However, earning profits will be less as a result of inflation.

Fail to Reject

Reject

Reject

2.110

-2.110

2.110

-2.110

1.64

8.88

8.88

P-value = .0277

Business Cycle

Refers to an irregular pattern of recession and recovery

government and legislative process

efficiency of local markets

exchange rate and its stability

trade policy and privatization policy

overall political stability

Significance = .05

If p-value is < significance level then reject the null hypothesis

If p-value is > significance level then we fail to reject the null hypothesis

Laura

Laura

Back Pocket Slides

Mean & Standard Deviation

Regressional Analysis for Inflation Rates

Regression without Japan

Thank You!

http://www.investopedia.com/terms/b/businesscycle.asp

http://www.investopedia.com/exam-guide/finra-series-6/economic-factors/economic-indicators.asp

http://www.globalization101.org/factors-influencing-foreign-investment-decisions

Introduction

Statistical Analysis

Hypothesis

Regression Analysis

Foreign Inflation

Macroeconomic Variables

Recommendations

Vardui

Vardui

Vardui

Vardui

Vardui

7

Laura

Laura

9

Laura

10

Laura

Simran

Simran

14

Simran

Simran

Yilong

Yilong

Yilong

Yilong

20

Chenjun

Chenjun

22

Chenjun

Chenjun

Chenjun

Domestic vs Foreign investment

Copyright 2009, Richard Gunther, Richard Tontz, and Shahid Ansari

Regression with Japan

Recap

Factors to Consider in Global Investments:

Correlation in % change in interest and market indices is weak

- Market indices drop as interest rates increase

- Regression proved low strength relation (R-square)

- Excluded Japan, drops further

Conclusion: Interest rate is a starting point, but not the only macroeconomic variable

Mean % change for stock market Indices:

Mean % change in interest rates:

t= 8.88 for mean % change in market indices

t= 1.64 for mean % change in interest rates

Market Indices

Interest Rates

25

Miguel

26

Miguel

Mean % change in market Indices

So.... .0277 < .05, we reject the null

Gregory Mankiw's Principles of Macroeconomics, 2nd edition.