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International Investment, Inc.

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by

Ryan Wang

on 16 November 2013

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Transcript of International Investment, Inc.

Growth Rate
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

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
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1 8
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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.
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