1

CONTRIBUTION EVALUATION
Student ID First name Parts contributed Contribution % Signature
S3893543 Chuong Part A1, A4A, A4B 100% Chuong
S3877976 Hieu Part A2, A3, A4B 100% Hieu
S3915093 Tram Part B1, B2, B3.4, B4 100% Tram
S3916005 Thu Part B2, B3, B4 100% Thu

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Table of Contents
Abbreviations.............................................................................................................................5
Section A...................................................................................................................................6
Part 1A:.....................................................................................................................................6
Step 1: Identify the needed data columns based on description....................................................6
Step 2: Import CSV file to R....................................................................................................6
Step 3: Row-eliminate with “DON’T KNOW” and missing values..............................................6
Step 4: Recode for appropriate format.......................................................................................6
Part 2A......................................................................................................................................7
1. Descriptive Analysis:.......................................................................................................7
2. Model (1)........................................................................................................................8
3. Multicollinearity testing....................................................................................................8
4. Heteroscedasticity testing:................................................................................................8
Part 3A....................................................................................................................................10
1. Goodness-of-Fit: interpretation........................................................................................10
2. Interpretation:................................................................................................................11
Part 4A:...................................................................................................................................12
1. Choice of probability model:...........................................................................................12
2. Estimation results:..........................................................................................................13
3. Economic theory............................................................................................................15
Part 4B:...................................................................................................................................16
1. Key Findings:................................................................................................................16
2. Policy Recommendation:................................................................................................16
3. Limitation:....................................................................................................................16
Section B.................................................................................................................................18
Part 1: Data assembly and cleaning.............................................................................................18
Part 2: Descriptive statistics and relevant tests.............................................................................18
1. Line charts....................................................................................................................18
a. Bitcoin......................................................................................................................18
b. FTSE.........................................................................................................................20
c. Crude oil...................................................................................................................21
d. Gold..........................................................................................................................23
2. Descriptive Statistics......................................................................................................24
3. Multiple regression........................................................................................................25

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 4. Serial correlation............................................................................................................25
Part 3: Discussion results...........................................................................................................26
1. Goodness-of-fit..............................................................................................................26
2. Interpretation of coefficients:..........................................................................................27
3. Adding trend variable.....................................................................................................28
4. Coefficient expectation...................................................................................................30
Part 4: Conclusion....................................................................................................................31
1. Main finding..................................................................................................................31
2. Policy...........................................................................................................................32
3. Limitation.....................................................................................................................32
Industry talk.............................................................................................................................33
Reference.................................................................................................................................34
Appendices..............................................................................................................................39

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 Abbreviations
FTSE100 - Financial Times Stock Exchange 100 Index

G&S - Good and Services

LSE - London Stock Exchange

MLE - Maximum Likelihood Estimation

OLS - Ordinary Linear Regression

SD - standard deviation

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Section A

Part 1A:
Step 1: Identify the needed data columns based on description.

Needed data columns: n5a, n5b, d2, b5, l1, b1, b7 and b7a (see Appendix 1).

Step 2: Import CSV file to R.

Step 3: Row-eliminate with “DON’T KNOW” and missing values.

All missing values are from n5a and n5b, 1259 rows were dropped using drop_na().

“DON’T KNOW” responses are coded “-9”, subset() is utilized to drop all rows with “-9”.
N5a and n5b are responsible for most eliminations (152 rows); l1, b7 and b7a get 1 row
eliminated each (Appendix 2). After cleaning, the data size went from 1664 to 251.

Step 4: Recode for appropriate format.

Firm Investment is fixed assets investment including equipment, land, and buildings; thus,
the data is obtained as n5a+n5b.

Firm Age is obtained as current year 2019 minus beginning year b5.

Legal Status Dummy interested in whether the firm is “Sole proprietorship”, b1 define “Sole
proprietorship”=3, thus we use ifelse(), returning “1” if b1=3, otherwise “0”.

Similarly, Gender of Top Manager and b7a, ifelse() is used to code “1” =Female and “0”
=Male.

Cleaned data is stored in “mydata” (Appendix 3).

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Part 2A.

1. Descriptive Analysis:

Mean Median SD Minim Maximum

um

Invest 9,025,000 200,000 68,735,373 100 1,000,000,000

Sales 34,606,913 20,000,000 45,790,503 300,000 376,000,000

Age 21.8 18 16.41 2.0 93.0

Size 125.2 30 340.88 5.0 4100

Legal 0.1912 N/A 0.39 0 1

Exp 27.24 26 12.26 1.00 60

Mana 0.9363 N/A 0.24 0 1

Gender

No. of
observation 251

Table_1:_Descriptive_statistics_of_all_the_variables

For Invest, Sales, Age and Size, their mean is significantly greater than Median meaning they
are heavily right-skewed (Appendix4-7). Furthermore, their Median is close to Minimum
value implying that the distribution has almost no left-tail. Their ranges remained large,
showing a wide-spread distribution, or in this case very long right tail. Except for Age, these
variables tend to have large disparities showcased by high standard deviations compared to
Mean. Hence, Invest, Sales and Size may contain a lot of extreme-large outliers.

In contrast to above variables, Exp’s distribution is well-centralised with small mismatch

between Mean and Median (Appendix 8). The range and standard deviation remained
moderate, meaning that the distribution of Exp is quite evenly spread, and contains almost no
outlier.

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For dummy variables, Legal’s mean is 0.1912 meaning 19.12% of observed firms are Sole
Proprietorships which is unusual because Sole Proprietorships is usually dominant in quantity
compared to other legalities (OECD 2022). ManaGender’s mean is 0.9363 meaning 93.63%
of firms have a female top manager.

2. Model (1)
log ( Invest ) =B 0+ B1 log ( Sales )+ B2 Age+B 3 ¿ B ¿4 Legal + B5 exp +B 6 ManaGender + μ

3. Multicollinearity testing
VIF test has been conducted to examine the existence of multicollinearity between the
explanatory variables (CFI Team 2022). The rule of thumb suggests that the VIF should not
exceed 10 (Wooldridge 2016). In this case, multicollinearity is insignificant as the VIF results
are very small, indicating there is low multicollinearity.

Explanatory variables VIF

Sales 1.173675

Age 1.576587

Size 1.260594

Legal 1.093570

Exp 1.349093

ManaGender 1.040037

Table_2:_VIF_of_explanatory_variables

4. Heteroscedasticity testing:
From Figure 4, the unequal scatter of residuals at different levels of the dependent variable
can indicate a high possibility of Heteroscedasticity. To examine the existence of
heteroskedasticity, Breusch-Pagan and White tests will be conducted.

H 0: δ 1=δ 2=⋅⋅⋅ δ k =0: Presence of Homoscedasticity (equal variance distribution of the

residuals)

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H 1: H 0is wrong: Presence of Heteroscedasticity (no equal variance distribution of the
residuals)

P-values are less than 0.05, H 0 can be rejected at 5% significance, heteroskedasticity is

present, which invalidates variance formulas for OLS estimators. Thus, it causes the OLS to
no longer be the best linear unbiased estimator, leading to unreliable hypothesis testing and
confidence intervals (Wooldridge 2016).

To remedy Heteroscedasticity, first, examination of the equation can be conducted to identify

specification errors. If there are no obvious specification errors, ‘robust’ standard errors can
be conducted to avoid consequences of Heteroscedasticity. “Robust” standard errors are
mostly more accurate than uncorrected standard errors in a wide size sample but they are
biassed (Heiss 2021).

Figure_1:_Model_(1)’s_scatterplot

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 Breusch-Pagan test

BP 19.08

DF 6

p-value 0.00403

White Test

Statistic 35.7

p-value 0.000358

Parameter method 12 White test greater

Table_3:_Breusch-Pagan_and_White_Test_results

Part 3A.

1. Goodness-of-Fit: interpretation

Model 1 Equation:

The goodness-of-fit will be interpreted to determine how the observed data correspond to the
fitted model (Great Learning Team 2022). For model 1, R2 = 0.1763, it denotes that 17.63%
of Investment’s variation is explained by the independent variables.

Estimate Std. Error T value Pr(|t|)

−6
(Intercept) 6.53427503 1.32480801 4.9322 1.504 × 10 ***

logSales 0.34417536 0.07435198 4.6290 5.973×10−6 ***

Age 0.01715506 0.01126098 1.5234 0.128952

Size 0.00069983 0.00053690 1.3035 0.193640

Legal -0.77653875 0.23443091 -3.3124 0.001065 ***

Exp -0.00916793 0.01420410 -0.6454 0.519247

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 ManaGender 0.26150103 0.31535560 0.8292 0.407787

Residual standard 1.897

error

Degrees of Freedom 244

Multiple R-squared 0.1763

Adjusted R-squared 0.156

F-statistics 8.701

Degrees of Freedom 6 and 244

−8
P-value 1.363 ×10 =0.00000001363

Table_4:_Model_1’s_Estimation_Result_(after_correcting_heteroskedasticity)1

^
log (Invest )=6.534+ 0.344 log ( Sales)+0.017 Age+0.0007 ¿ egal−0.009 exp+0.261 ManaGender

2. Interpretation:
As the p-value of the Intercept, log(Sales) and Legal is lower than 0.10, null hypothesis is
rejected and relationship between these variables and log(Invest) exists. On the other hand,
Exp and ManaGender are statistically insignificant for this model.

Variable Interpretation (ceteris paribus)

1% increase in Sales increases 0.334% of Firm Investment.

log(Sales)

Firm Investment is 77.6% lower if the company is the Sole

Legal
proprietorship rather than other legal statuses.

1 Notes: *** p<0.01, ** p<0.05, * p<0.10.

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 Table_5:_Model_1’s_interpretation.

Part 4A:

1. Choice of probability model:

Linear-Probability-Models (LPM) as linear-models are favoured for easy interpretation.

However, fitted-values can exceed (0;1) meaning probability <0%-or->100% which is
uninterpretable; Second, it assumes constant-marginal-effects which do-not hold for
probabilities (Wooldridge 2015). For instance, regarding Size, a small firm going from 2 to 3
employees will never have the same impact on HI-probability as a big firm going from 1000
to 1001 employees.

Probit and Logit models can remedy LPM problems thanks to their nonlinear-forms and y-hat
interval within (0, 1). Both are estimated using MLE unlike linear models using OLS.
Theoretically, Probit is based on the probit-function and Logit is-based-on the logistic
function, but their graphs share similar shape-and-properties (mentioned above).
Consequently, to choose between them, the pseudo-R 2 of McFadden (1974) and the number
of correct predictions were adopted. McFadden’s-Pseudo-R 2 is a fitting-goodness
measurement for binary-responses which is basically a comparison between maximized log-
likelihood-of-the fitted-model versus intercept-only model. Table 1 shows that Logit is higher
both in No.-of-correct-predictions and pseudo-R2. Ultimately, Logit-model is chosen for
Model (2).

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 Logit Probit

No. of correct prediction 162 155

% of correct prediction 64.54% 61.75%

Pseudo-R2 0.1221 0.1176

Table_6:_Comparison_of_Logit_and_Probit_model

2. Estimation results:

Estimate Std. Error z-value p-value Average Partial

Effect

(Intercept) -2.902600 1.953104 -1.486 0.1372

logSales 0.147579 0.108425 1.361 0.1735 0.03689475

Age 0.019869 0.010969 1.811 0.0701 0.00496725*

Size 0.003462 0.001489 2.325 0.0201 0.0008655**

Legal -0.872391 0.390924 -2.232 0.0256 -0.21809775**

Exp -0.011972 0.013218 -0.906 0.3651 -0.002993

ManaGender 0.141220 0.574494 0.246 0.8058 0.035305

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 % of correct 64.54%
prediction

Pseudo-R2 0.1221

Table_7:_Estimate_results_of_Model_(2)

Model (2) has 3 statistically-significant variables namely Age, Size and Legal, the p-value are
0.0701, 0.0201 and 0.0256 respectively, so we can reject H0 that β j=0 at 10%-significance for
these variables.

Logit-model, unlike LPM, is non-linear, the-marginal-effect is not constant. Thus, the

coefficient cannot be easily interpreted as LPM. Therefore, we adopt Wooldrigde’s (2015)
rough-estimation of the average partial effect by dividing the coefficient by 4 (see Figure 1)
for simplicity of measurement-and-interpretation.

Interpretation:

Variable Interpretation (ceteris paribus)

Age Given an additional year in firm age, the rough probability that the
firm has high investment increases by 0.5%.

Size If firm size increases by 1 employee, the rough probability that the
firm has high investment increases by 0.087%.

Legal The rough probability of firm having high investment is 21.81% less
when the firm is a sole proprietorship rather than other legal statuses.

Table_8:_Model_2’s_Interpretation.

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 3. Economic theory

Investment has always been considered the main-contributor-to-firm-performance; many

economists found significant-positive-relationships between investment and sales (Griliches,
1988; Romer, 1990; Heshmati & Lööf 2008). Consequently, positive-relationships between
firm investment and sales are expected.

Older-and larger-scaled firms will likely have a higher investment to maintain their
competitiveness as a part of their-business-cycle (Graebner-and-Eisenhardt, 2004; Villalonga
and McGahan, 2005; Yildiz et al. 2013). Younger-and-smaller firms suffer-more difficulties
in investment-process due to lacking-experience; hence, lower-investment (García-Quevedo
et al. 2014). Thus, positive-relationships are expected between investment and firm age/size.

“Sole-proprietorship” usually lacks access or-credibility to-funds (e.g., stock-market, bank

loans). Hence, “sole proprietorship” firms are likely to have lower investments.

Researchers usually hypothesise that female-firm-leaders tend to be more-conservative and

risk-averse (Smith et al. 2006; Dezsö-and-Ross 2012; Datta et al. 2021). However, since safer
investment isn't-equivalent to smaller investment (or vice-versa), we expect no significant
relationship between ManaGender and Firm Investment.

Most papers agree more-experienced-managers are usually better decision-makers and

strategy-planners (Hambrick and Mason 1984; Finkelstein 1992; Kor 2006). However, since
wiser investment doesn’t-necessarily mean bigger-investment, we expect no significant
relationship between top manager experience and firm-investment.

Overall, Model-(1) is-not quite aligned with-expectation as Age and Size are not found
significant. Model-(2) is consistent with-expectation except for the insignificance of Sales.
Mismatch with expectation may-be due-to problems with data collection that reduced the
significance of these variables especially for Sales in Model (2); for Model (1) mismatch
occurs after adoption of robust-SD. Both models found Legal significant and negative
relationships with Investment/HI which is expected.

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Part 4B:

1. Key Findings:

After adjustment of Model (1), we found that firms with higher Sales tend to have higher
Firm Investment. Besides, sole proprietorships tend to have 77.6% less of firm investment
versus other legalities. Besides, the effect of Age, Size, Exp and ManaGender are
insignificant.

From Model (2), we found that older and bigger firms will have a higher chance of having
high investment. We also found that the legal status has a strong impact: sole proprietors will
have roughly 21.8% lower chance of having high investment versus other legal statuses.
Also, Sales, Exp and ManaGender have no impact on probability of “high investment”.

2. Policy Recommendation:

Sole proprietors tend to have lower investments according to both Model (1) and (2)
reflecting their lacking access to funds. However, firms usually choose to remain as “sole
proprietorships” to enjoy the advantages of full profit, lower tax and regulation. On a national
scale, this decreases investment in the private sector and decreases economic output.
Consequently, for policy-makers, encouraging sole proprietorships to become higher
legalities may force them out of their comfort-zone, and get more investment ongoing; hence,
boost national investment expenditure and outputs. A detailed and long-run agenda of ODA
investment plans more toward non-sole-proprietorships is recommended as a potential
motivation to encourage more sole proprietors to become higher statuses.

3. Limitation:

First, the initial sample is 1664, but drastically decreased to 251 due to missing values.
Although sample size remained sufficient, unusual eliminations make our models less
reliable.

Second, since fixed assets are usually long-term investments, we may have miscaptured firm
investment by observing only in 1 year. For instance, if a firm purchases machinery in 2018,

16
and won’t replace or expand until 2023, we will completely omit this investment observing
only 2019.

For better estimation of Model (1) and (2), firstly insignificant variables need to be dropped
to prevent overfitting and collinearity. While the first limitation is out-of-hand, the second of
miscapturing long-term investment can be remedied by examining a longer period, e.g., last-
5-years, last-10-years, or year-to-date.

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Section B

Part 1: Data assembly and cleaning

FTSE100 index comprises the LSE’s top 100 companies in market capitalization; hence,
nearly represents the whole LSE (Groves 2022). To investigate the relationship between
FTSE100’s return and the return of Bitcoin, gold and crude oil, the historical price during
January2012-November2022 was examined. The downloaded-data from Investing.com was
imported into R-studio and a new dataset containing 131 observations on the closed prices of
each variable was created, knowing that no missing data was detected in the dataset.

Part 2: Descriptive statistics and relevant tests

1. Line charts

a. Bitcoin
The price had trend and no evidence for cyclical or seasonal patterns. The dramatic uptrend in
2020 was stimulated by inflationary pressures and Tesla’s acceptance of Bitcoin payments.
Afterwards, the price entered a downtrend as Tesla stopped accepting Bitcoin payments and
interest rate hikes by FED.

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Figure_2:_Line_chart_of_Bitcoin_price_(USD_2012-2022.

Figure_3:_Components_of_Bitcoin_price_(USD)_2012-2022.

19
 b. FTSE

Generally, the FTSE100 steadily accelerated until 2020, when the Covid-19 strike.
Nevertheless, FTSE100 rapidly recovered in late 2020 and reached the pre-pandemic level.
There is no seasonal or cyclical pattern.

Figure_4:_Line_chart_of_FTSE_100_index_(points)_2012-2022.

20
 Figure_5:_Components_of_FTSE_index_(points)_2012-2022.

c. Crude oil

The price had trend and no evidence for cyclical or seasonal patterns. The downtrend until
2020 was owed to excessive supply (WorldBank 2018). The following uptrend was owed to
supply shortage caused by labour cut and sanctions against Russia (World Bank 2022).

21
Figure_6:_Line_chart_of_crude_oil_price_(USD/barrel)_2012-2022.

Figure_7:_Components_of_crude_oil_price_(USD/barrel)_2012-2022.

22
 d. Gold

Following eased inflationary pressure, gold price followed a downward trend in the first half
period but since 2016, the data seems to be uptrend following. There is no seasonality or
cyclical pattern detected.

Figure_8:_Line_chart_of_Gold_price_(USD/troy_ounce)_2012-2022.

23
 Figure_9:_Components_of_Gold_price_(USD/troy_ounce)_2012-2022.

2. Descriptive Statistics

No. of Min Mean Max SD No. of

Observations outliers

Bitcoin 131 4.9 9726.8 61309.6 15055.05 18

FTSE100 131 5321 6770 7749 589.36 0

Crude oil 131 18.84 68.15 114.67 22.90 0

Gold 131 1060 1457 1974 255.89 0

Table_9:_Descriptive_Statistics_of_variables.

Most noticeably, only Bitcoin had outliers and observations widely spread from the mean
(standard deviation>mean). The remaining variables had no outliers and were distributed

24
close to the mean (standard deviation<mean ). Bitcoin’s maximum price is almost 12,500
times the minimum. The maximum values of FTSE 100, Crude oil and Gold were 1.46, 6.09
and 1.86 times the minimum values, respectively. Accordingly, differences between the
maximum and minimum values of these variables were significantly less than that of Bitcoin.

3. Multiple regression

Log-return transformation makes data become less skewed and improves linearity. The
equation to measure the impact of return of Bitcoin, crude oil and gold on return of FTSE 100
will be (Appendix 9-13):

log return ( FTSE 100 )=B 0 +B 1 log return ( bitcoin )+ B2 log return ( oil ) + B3 log return ( Gold )+ μ

4. Serial correlation

The Durbin-Watson and Breusch-Godfrey tests were conducted to examine the existence of
model 3’s serial correlation.

Figure_10:_PACF_for_model_3’s_residual.

The residual appears to have correlation with its first lag as lag 1 exceeds the threshold line.

Hypothesis for Breusch-Godfrey and Durbin-Watson tests to check the correlation:

25
H0: ρ1= ρ2=…=ρn : no serial correlation between error term and its first lag

H1: serial correlation exists.

With both tests having p-value<5%, null hypothesis was rejected and hence, there is serial
correlation.

Breusch-Godfrey test

LM test p-value

9.5674 0.001981

Durbin-Watson test

Autocorrelation p-value

-0.2618608 0.02
Table_10:_Results_of_Breusch-Godfrey_and_Durbin-
Watson_test_for_first_order_lag_model_3.

Although the variables’ coefficients remain unbiased, serial correlation makes standard error
and significance tests of explanatory factors become imprecise. To be specific,
positive/negative correlation might deflate/inflate the standard error causing Type 1/Type 2
error (Kacapyr 2014). Variables’ functional form should be reviewed carefully to specify as
taking the wrong function form might be the reason to drive impure serial correlation.
Otherwise, the Newey-West method could be used as a remedy for unreliable standard errors
owing to pure serial correlation.

Part 3: Discussion results

1. Goodness-of-fit

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 Estimate Std. Error t value Pr(>|t|)

(Intercept) 0.001096 0.002724 0.403 0.6879

log_return_bit 0.021213 0.009615 2.206 0.0292 **

log_return_gold 0.088909 0.065031 1.367 0.1740

log_return_oil 0.133668 0.020917 6.390 2.92×10−9 ***

R2 0.2893

Adjusted R- 0.2724
squared
Table_11:_Regression_result_of_Model_3.

Correcting serial correlation’s result:

Estimate Std. Error t-value Pr(>|t|)

(Intercept) 0.0010965 0.0023720 0.4623 0.64469

log_return_bit 0.0212129 0.0102280 2.0740 0.04012 **

log_return_gold 0.0889092 0.0743100 1.1965 0.23376

log_return_oil 0.1336684 0.0316089 4.2288 4.478×10−5 ***

Table_12:_Regression_results_of_Model_3_after_Newey-West.

^
log FTSE=0.0011+0.0212 log (bit)+0.133 log(oil)+0.0890 log(gold )

The R-squared of 0.2893 suggested that 28.9% of the variation of log(return of FTSE100) can
be explained by the variation of independent variables. The remaining 71.1% was explained
by the unobserved variables.

2. Interpretation of coefficients:
The p-value<0.05 illustrates log-return bitcoin and log-return crude oil’s statistical
significance to log-return FTSE. Meanwhile, the effect of log-return gold is insignificant due
to higher-than-0.05-p-value.

B1=0.0212 means that an additional percentage of Bitcoin’s return causes FTSE100’s return
increase 0.02%, ceteris paribus.

27
B2=0.1336684 means that as Crude oil’s return increases by 1%, make FTSE100’s return
increase by 0.13%, ceteris paribus.

3. Adding trend variable

log return ( FTSE 100 )=B 0 +B 1 log return ( bitcoin )+ B2 log return ( oil ) + B3 log return ( Gold )+ B 4 Trend + μ

Estimate Std. Error t value Pr(>|t|)

(Intercept) 3.845e-03 5.577*10^-03 0.689 0.4918

log_return_bit 2.032e-02 9.771*10^-03 2.079 0.0396 **

log_return_gold 9.356e-02 6.572*10^-02 1.424 0.1571

log_return_oil 1.346e-01 2.104*10^-02 6.398 2.87e-09

Trend -4.110e-05 7.272*10^-05 -0.565 0.5729

R2 0.2911

Adjusted R- 0.2684
squared
Table_13:_Regression_result_of_Model_4.

Figure_11:_PACF_Residuals_of_Model_4

Breusch-Godfrey test

28
 LM test p-value

9.8749 0.001675

Durbin-Watson test

Autocorrelation p-value

-0.2653717 0.02
Table14:Results_of_Breusch-Godfrey_and_Durbin-Watson_test_for_first-
order_lag_model_4.

In model 4, serial correlation is detected with first-order lag due to smaller than 0.05 p-value. 2
The remedy is to apply the Newey-West method to re-estimate the standard errors.

Coefficients Std. Error t value Pr(>|t|)

(Intercept) 0.003845 0.0044514 0.8639 0.38932

log_return_bit 0.02032 0.010419 1.9500 0.05342 *

log_return_gold 0.09356 0.07.5337 1.2419 0.21660

log_return_oil 0.1346 0.03.1360 4.2928 0.00003504 ***

Trend -0.00004110 0.000063504 -0.6473 0.51864

Table_15:_Regression_results_of_Model_4_after_Newey-West.
^
log FTSE=0.003845+0.02032 log bit +0.09356 log gold + 0.1346 log oil −0.0000411trend

Hypothesis test for the impact of trend variable on the log-return of FTSE100:

H0: βj=0: FTSE100’s return has no trend.

H1: βj≠0: There is a trend of FTSE100’s return.

With p-value=0.51864(>0.05), null hypothesis is not rejected and hence, FTSE100’s return
has no significant trend. Noticeably, after adjusting for serial correlation, the log-return of
bitcoin variables no longer appears to have significant impact on the return of FTSE100.

2 Applying the same hypothesis test in Part 2 - Q4

29
 4. Coefficient expectation

Variables Model 3 Model 4

Intercept 0.001096 3.845×10−3=0.003845

(0.0023720) (4.451×10−3=0.004451)

Log_return_Bitcoin 0.021213** 2.032×10−2=0.02032

(0.010228) (1.0419×10−2=0.010419 )

Log_return_Gold 0.088909 9.356×10−2=0.09356

(0.0743100) (7.5337×10−2=0.075337 )

Log_return_Crude_oil 0.133668 *** 1.346×10−1=0.1346 ***

(0.0316089) (3.1360×10−2=0.031360 )

Trend -4.110×10−5=0.0000411
(6.3504×10−5=0.000063504 )

Observations 130 130

R-squared 0.2893 0.2911

Adjusted R-squared 0.2724 0.2684

F test (p-value) 2.239×10−9 8.801×10−9

Table_16:_Comparison_result_of_Model_3_and_4_after_the_Newey-West_test.

Overall in Model 3, two independent variables were significant, including the Bitcon and
Crude oil’s return, whereas only Crude oil’s return was significant in Model 4.

Regarding Bitcoin, positive impacts on the stock index were expected, because Bitcoin
price’s determinants were similar to equities’, such as inflationary pressure and interest rate
hikes (Chan et al. 2019). Therefore, the Bitcoin’s coefficient was more reasonable in Model
3.

Both models confirmed the insignificance of Gold’s return. However, gold’s return is
expected to negatively impact FTSE100’s return, since Fakhfekh et al. (2021) found that
commodities, especially gold, has been a safe haven for investors, when the financial market
is under pressure of economic slowdown or political uncertainties.

30
Both models confirmed Crude oil return’s significant positive impact on FTSE100’s return.
However, an immediate negative impact was expected, because oil price hikes would
increase input costs and lower firm’s profitability, especially those in the service, consumer
goods and financial sectors, which are currently taking approximately 70% of the FTSE100
index (Jiang and Liu 2021; Chang et al. 2013; Soucek and Todorova 2013; Giselda 2022).

Lastly, the insignificance of the Trend variable on FTSE100’s return was reasonable, due to
stock index’s non-constant volatility (Alexandar 2000; Kasibhatla et al. 2006). Stock index’
return is determined by the comprised stocks’ price fluctuation, which is volatile to the
unanticipated and inconsistently altering factors, such as economical and political
uncertainties (Kajurova 2015) and the firm’s performance itself (Abraham and Cox 2007).

Part 4: Conclusion

1. Main finding

Section B aimed to discover whether the return of FTSE100 is driven by the return of bitcoin,
gold and crude oil. We found that Bitcoin’s return significantly impacts the FTSE100’s
return; nevertheless, it has an insignificant effect in model 4 when trend variable is added.
Furthermore, crude oil’s return appears to have a positive relationship with FTSE100’s return
which is unrealistic, since 70% of FTSE100 index firms are in the consumer G&S sector
whose profitability would decrease given increasing oil price. There is no significant
correlation between gold’s return and FTSE100’s return. Additionally, the FTSE100’s return
has no trend.

2. Policy

With the discovered positive relation, whenever recognizing an uptrend in the Bitcoin’s
return, investors should buy FTSE100’s stocks or buy both stocks and Bitcoin to diversify
investment portfolio and reduce risk. Noticeably, with the dataset’s monthly interval,
investors should hold the long position in the long-term to maximise the benefits of the
discovered relationship. Moreover, accelerating Crude oil’s return is a good buying signal for
FTSE100’s stocks due to discovered positive impacts. However investors should only invest

31
in energy-sector firms, since this sector is most beneficial from oil price hikes (Jiang and Liu
2021).

3. Limitation

The low Adjusted-R2 in both models denied the significant independent variables’ explanatory ability
and hence, reduced the models’ reliability. To improve, stock market factors such trading volume and
market liquidity should be included, for their significant impacts on investor’s investing demand
(Afego 2017). Other macroeconomic factors including inflation and economic recession should be
considered for being the major stimulator of investors’ uncertainties regarding the stock market
(Samaha and Abdala 2012; Khalfaoui, Gozgor and Goodell 2022). Furthermore, the model could
have considered the lagged of Crude oil’ return, because Xiao and Wang (2020) argued that the
negative impact of oil price on stock index would have some delayed spillover effects,
because higher oil prices stimulate inflationary pressure and the implied tightened monetary
policies would negatively hit stock market.

32
Industry talk
The first main point covered the technical aspects of problem-solving relative to the usage of
data. Mr. Gia covered the involvements of bringing the theory to life, through a four-phase
process. The first phase consisted of basic steps such as identifying issues, results and
determination of required resources. Then, the results and insights can be found which then
requires interpretation and communication of the insight. Lastly, the insight is translated into
action to solve the issue.

With the theory mentioned, Mr. An had backed the claim with the realistic application of
quantitative analysis. He has well walked through the audience how the issue has been
identified and the solution from conducting counterfactual analysis and priositing which type
crash to handle first. Overall, the delivery has allowed the audience to have a better view of
how the theory is applied into real life situations.It is highly beneficial for approaching issues,
especially for fresh graduates that are new to the industry.

Besides the mentioned technical factors, according to Mr.Gia, there are beyond data factors
that should be taken into consideration. From the experience of the speaker, translation of
insights into action is also one of the biggest challenges that he has faced. To assist the
interpretation of the data which drives decision making, effective communication and
analysis of results is necessary. Factors should be taken in consideration to increase the
effectiveness of communication includes role identification, provides empathy to the
audience and understands personalities. When conducting data analysis, finding the solution
is not the only objective but also how the results are translated to be easy to comprehend is
crucial. Therefore, the sharing from Mr. Gia on the communication approach is highly useful
for individuals that have careers in the industry to foresee upcoming challenges and be
equipped with the necessary skills.

33
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Appendices

Needed Data Description Corresponding Column name in

Column Label Variable “mydata”

n5a Total Annual Expenditure for Firm Investment Invest

Purchases of Equipment in
Last FY

n5b Total Annual Expenditure for

Purchases of Land and
Buildings in Last FY

d2 Annual Sales Last FY Firm Sales Sales

b5 Begin Year of Operation Firm Age Age

l1 Total Employees Firm Size Size

b1 Legal Status of Firm Legal Status Legal

Dummy

b7 Top Manager Years of Experience Exp

Experience

b7a Whether The Top Manager Is Gender of Top ManaGender

Female Manager

Appendix 1: Column’s names of variables.

39
Label No. of rows having “-9” eliminated.

n5a 152

n5b

d2 0

b5 0

l1 1

b1 0

b7 1

b7a 1

Appendix 2: No. of observations with “don’t know” values.

40
 Abbreviation

Invest Firm investment: total money spent on any new

or used fixed assets, such as machinery,
vehicles, equipment, land or buildings (in LCUs)

Sales Firm sales: total annual sales for all products and
services (in LCUs)

Age Firm age: number of operating years (measured

by subtracting year of beginning operation from
the year of the survey)

Size Firm size: number of all employees and

managers

Legal Legal status dummy ( 1= if firm is Sole

proprietorship, 0 = others)

Exp Experience: Working experiences of Top

Manager (number of years of experience
working in this sector of Top Manager)

ManaGender Gender of Top Manager (1 = female, 0 = male)

Appendix 3: Abbreviation for Section A variables.

41
Appendix 4: Histogram of Firm Investment ( x = (0, 8,000,000))

Appendix 5: Histogram of Firm sales (x = (0, 8,000,000))

42
Appendix 6: Histogram of Firm Age

43
 Appendix 7: Histogram of Firm Size

Appendix 8: Histogram of Experience Variable

44
Appendix 9:
The return (%) of FTSE 100 index, Bitcoin, crude oil and gold will be calculated for further
regression model as observations are positive, using formula:
Log-return (x) = Log(x)-log(x-1)

(a) (b)
Figure: (a) Scatter plot of Bitcoin price on FTSE
(b) Scatter plot of Bitcoin’s return on FTSE’s return

(a) (b)
Appendix9: (a) Scatter plot of Crude oil price on FTSE
(b) Scatter plot of Crude oil’s return on FTSE’s return

(a) (b)
Appendix 10: (a) Scatter plot of Gold price on FTSE
(b) Scatter plot of Gold’s return on FTSE’s return

45
Appendix 11: Components of Bitcoin return (%)

Appendix 12: Components of FTSE return (%)

46
Appendix 13: Components of crude oil return (%)

Appendix 14: Components of gold return (%)

47