Analysis of ANOVA

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.886
R Square 0.785
Adjusted R Square 0.781
Standard Error 2.705
Observations 58

ANOVA
df SS MS F Significance F
Regression 1 1495.605 1495.605 204.349 2.4558E-20
Residual 56 409.858 7.319
Total 57 1905.463

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0.301 0.355 0.848 0.400 -0.411 1.013 -0.411 1.013
4.893 1.170 0.082 14.295 0.000 1.006 1.334 1.006 1.334

Table 2: Regression Analysis (DSEX and Value Weighted Portfolio)

The excel output summary of this regression analysis is given in table 2. The total number of observations
for the regression analysis of the dependent variable that is the financial institutions' equally weighted
portfolio's monthly excess returns with DSEX monthly excess returns that is the independent variable is
58.

ANOVA stands for analysis of variance for the securities characteristic line. SS stands for the sum of
squares. Here the total sum of squares is 1905.46 that is the total sum of squares for Financial Institutions
equally weighted portfolio’s excess return that is the dependent variable. The total degree of freedom is
57 (that is the total number of observations that is 58 minus 1).

The estimate of the variance of the dependent variable here is 33.43 per month that is calculated as the
total sum of squares (1905.46) divided by total degrees of freedom (57). The degree of freedom for
regression is 1. 56 is the degree of freedom for residual that is calculated by 58 minus 2 where 2 is the
estimated parameters alpha and beta.

The sum of squares (SS) of the regression is 1495.60 is the portion of the variance of the dependent
variable that is the Financial institutions equally weighted portfolio’s return as explained by the
independent variable DSEX return so this part explains the systematic risk. The mean sum of squares
(MS) for regression is 1495.60 that is the variance of the systematic risk of the portfolio.

The mean sum of squares (MS) of the residual is 7.319 is the variance of the unexplained portion of the
risk of equally weighted financial institution portfolio returns. This is the variance of the firm specific risk
of the portfolio’s return.
The square root of the mean sum of squares (MS) of the residual which is the standard error of the
regression is 2.705. Here, dividing explained the sum of squares (SS) of regression 1495.605 by total sum
of squares (SS) 1905.463 gives R-square of regression which is 78.49%.

X & Y are variables and will take on different values at different points in time. The values of a & b are
substituted in the regression equation where a is alpha or intercept and b is beta to get the relationship
between X & Y as follows:

Y = 0.301 + 1.170*X

Here, the intercept of the equation that is 0.301 is the Financial Institutions equally weighted portfolio’s
expected excess return when the DSEX excess return that is the market excess return is zero. Beta of
Financial Institutions equally weighted portfolio is the slope coefficient. This indicates that for every 1
percent increase or decrease in the return on the DSEX, Financial Institutions equally weighted portfolio’s
return would increase or decrease by 1.170 percent.

The intercept is 0.301 or 30.1% per month is the Financial Institutions equally weighted portfolio’s alpha
estimate and is statistically insignificant. The beta estimate is 1.170 for the Financial Institutions equally
weighted portfolio. According to the null hypothesis, the alpha and beta are assumed to be zero. Using the
standard error, t-stat, or p-value we can test whether to accept or reject the null hypothesis. Standard error
is simply the standard deviation of those coefficients.

The standard error of intercept is 0.355 and the standard error of beta estimate is 0.082. If the standard
error is large, then the range of likely estimation error is correspondingly large. T-stat is the coefficient
value divided by the standard error. The larger t-stat value will imply low probabilities that the true value
is zero. When the t-stat value is really large, the probability value is going to be smaller. The t-stat value
for alpha is 0.848 and the p-value is 0.400 or 40% that is more than 5% so we cannot reject the null
hypothesis.

If the probability (P-value) than is 5% or lower, then we can reject the hypothesis. The p-value of 0.400
for the alpha estimate indicates that if the true alpha were zero then the probability of obtaining an
estimate of 0.301 would be 0.400. We conclude that we cannot reject the null hypothesis so the true
value of alpha is zero.

For beta, the t-stat is 14.295 and the p-value is zero so we can reject the hypothesis. The beta estimate for
Financial Institutions equally weighted portfolio is 1.170. This indicates that the portfolio’s excess
returns are 117.0 percent more volatile than market index that is DSEX’s excess returns that is Financial
Institutions equally weighted portfolio's excess returns have a greater than average sensitivity to the
index.
 Regression Model of Value Weighted Portfolio-DSEX
20.00

15.00
Excess Return of Value Wt Portfolio

f(x) = 0.67 x − 0.19

10.00

5.00

0.00
-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00

-5.00

-10.00

-15.00
Excess Return of DSEX

The relationship between the returns of value weighted portfolio and the DSEX is made clearer by the
scatter diagram in figure 1, where the regression line is drawn through the scatter.
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.491
R Square 0.242
Adjusted R Square 0.228
Standard Error 9.434
Observations 58

ANOVA
df SS MS F Significance F
Regression 1 1587.223 1587.223 17.835 8.9396E-05
Residual 56 4983.749 88.996
Total 57 6570.972

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 1.203 1.239 0.971 0.336 -1.279 3.684 -1.279 3.684
4.893 1.206 0.285 4.223 0.000 0.634 1.778 0.634 1.778

Table 3: Regression Analysis (DSEX and Prime Finance First Mutual Fund)

The excel output summary of this regression analysis is given in table 2. The total number of observations
for the regression analysis of the dependent variable that is the financial institutions' equally weighted
portfolio's monthly excess returns with DSEX monthly excess returns that is the independent variable is
58.

ANOVA stands for analysis of variance for the securities characteristic line. SS stands for the sum of
squares. Here the total sum of squares is 6570.972 that is the total sum of squares for Financial
Institutions equally weighted portfolio’s excess return that is the dependent variable. The total degree of
freedom is 57 (that is the total number of observations that is 58 minus 1).

The estimate of the variance of the dependent variable here is 115.28 per month that is calculated as the
total sum of squares (6570.972) divided by total degrees of freedom (57). The degree of freedom for
regression is 1. 56 is the degree of freedom for residual that is calculated by 58 minus 2 where 2 is the
estimated parameters alpha and beta.

The sum of squares (SS) of the regression is 1587.223 is the portion of the variance of the dependent
variable that is the Financial institutions equally weighted portfolio’s return as explained by the
independent variable DSEX return so this part explains the systematic risk. The mean sum of squares
(MS) for regression is 1587.223 that is the variance of the systematic risk of the portfolio.
The mean sum of squares (MS) of the residual is 88.99 is the variance of the unexplained portion of the
risk of equally weighted financial institution portfolio returns. This is the variance of the firm specific risk
of the portfolio’s return.

The square root of the mean sum of squares (MS) of the residual which is the standard error of the
regression is 9.434. Here, dividing explained the sum of squares (SS) of regression 1587.223 by total sum
of squares (SS) 6570.972 gives R-square of regression which is 24.15%.

X & Y are variables and will take on different values at different points in time. The values of a& b are
substituted in the regression equation where a is alpha or intercept and b is beta to get the relationship
between X & Y as follows:

Y = 1.203 + 1.206*X

Here, the intercept of the equation that is 1.203 is the Financial Institutions equally weighted portfolio’s
expected excess return when the DSEX excess return that is the market excess return is zero. Beta of
Financial Institutions equally weighted portfolio is the slope coefficient. This indicates that for every 1
percent increase or decrease in the return on the DSEX, Financial Institutions equally weighted portfolio’s
return would increase or decrease by 1.206 percent.

The intercept is 1.203 or 120.03% per month is the Financial Institutions equally weighted portfolio’s
alpha estimate and is statistically insignificant. The beta estimate is 1.206 for the Financial Institutions
equally weighted portfolio. According to the null hypothesis, the alpha and beta are assumed to be zero.
Using the standard error, t-stat, or p-value we can test whether to accept or reject the null hypothesis.
Standard error is simply the standard deviation of those coefficients.

The standard error of intercept is 1.24 and the standard error of beta estimate is 0.29. If the standard error
is large, then the range of likely estimation error is correspondingly large. T-stat is the coefficient value
divided by the standard error. The larger t-stat value will imply low probabilities that the true value is
zero. When the t-stat value is really large, the probability value is going to be smaller. The t-stat value for
alpha is 0.971 and the p-value is 0.336 or 33.6% that is more than 5% so we cannot reject the null
hypothesis.

If the probability (P-value) than is 5% or lower, then we can reject the hypothesis. The p-value of 0.336
for the alpha estimate indicates that if the true alpha were zero then the probability of obtaining an
estimate of 1.203 would be 0.336. We conclude that we cannot reject the null hypothesis so the true
value of alpha is zero.

For beta, the t-stat is 4.223 and the p-value is zero so we can reject the hypothesis. The beta estimate for
Financial Institutions equally weighted portfolio is 1.206. This indicates that the portfolio’s excess
returns are 120.6 percent more volatile than market index that is DSEX’s excess returns that is Financial
Institutions equally weighted portfolio's excess returns have a greater than average sensitivity to the
index.
 Regression Model of Prime Finance First MF -DSEX
20.00

15.00
f(x) = 0.67 x − 0.19
Excess Return of Prime Fin. First MF

10.00

5.00

0.00
-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00

-5.00

-10.00

-15.00
Excess Return of DSEX
The relationship
between the returns of Value weighted financial institution portfolio and the DSEX is made clearer by the
scatter diagram, where the regression line is drawn through the scatter.