Regression Analysis of weekly Returns between NIFTY50 and DLF
Title: Regression Relationship of DLF with NIFTY50.
Author: Divya Mohite
Introduction:
DLF Limited is one of the largest real estate companies in India, headquartered in Gurugram, Haryana. It was founded in 1946 by Chaudhary Raghvendra Singh and is now a publicly-traded company listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). DLF is known for its significant presence in the development of residential, commercial, and retail properties across India.
Objective: To understand the regression relationship between average weekly returns of NIFTY50 and DLF.
Literature Review:
1. The research reviewed in this article shows how difficult it is for academics and practitioners to reach consensus conclusions about how environmental contamination affects real estate. This genre of valuation literature discusses appraisal techniques but does not arrive at a unified opinion. Additionally, there is a lack of agreement in the empirical sales price literature regarding the existence, size, and persistence of pricing impacts, among other concerns. The article’s conclusion summarises the findings of these research with regard to the origin of the contamination, its impact on sales price, its persistence, and any intervening factors like favourable or unfavourable market conditions. (Thomas Jackson,2020)
2. The choice to purchase residential property may be one of the most significant financial decisions a person will ever make, and it is inevitable that there will be an emotional connection when a house becomes a home. However, it seems that the literature does not adequately address this stylised reality. Real estate’s significance cannot be denied, but the consumer aspect as well as the social and emotional aspects are frequently overlooked. In order to better comprehend the built environment, we give an overview of the current situation of the key themes where the behavioural approach crosses with real estate. A considerable portion of behavioural decision making is still unexplained, despite the common assumption that behavioural studies can serve to shed light on real estate markets. (Diego Salzman, 2020)
Data Collection:
The closing price data of Nifty50 and DLF was taken from www.nseindia.com (National Stock Exchange) for the time period 1ST APRIL 2022 to 31ST MARCH 2023.
From the available data, the closing rates of all the Fridays in the year was sorted to find out weekly returns for both Nifty as well as DLF then the weekly returns were calculated for both by using formula – Weekly return = (C3-C2)/C2 *(100) Where C3 represent week closing price and C2 is previous week closing price. Once the data is calculated, weekly return column for NIFTY50 is considered as “X” variable and the weekly returns column for DLF is considered as “Y” variable.
Data Analysis:
We can write the equation in the form of Y= a+b(X)
Where, Y= DLF Returns
X=Nifty-50 Returns
a=intercept and b=Slope
Hence, the equation become,
Y= (-0.055006451) + 1.342968226*X
DLF Return = (-0.055006451) +1.342968226*(Nifty-50 Return)
(t-stat =6.481746926)
N=51 R2=0.461615629 and F=42.01304321
The above equation shows the relationship between X and Y (As b is positive) means there is a direct relationship which implies that is X rises, Y also rises and vice versa. In this equation b =1.34, that is if X rises by 1 unit, Y will rise by 1.34-unit, t-stat for b is greater than critical value, so b is statistically significant at 5% significance level.
R^2 = 0.461615629 which means only 46.16% of Y i.e., DLF weekly returns is explained by X i.e., Nifty returns.
Similarly, F = 42.01304321, which is also greater than table value.
And p-value is greater than 0.05, so the model is statistically significant at 5% level of significance.
Conclusion:
As, beta (b) is more than 1, which implies DLF is good for short term investment.
References:
Thomas Jackson; 2020, Journal of Real Estate Literature, The effects of Environmental contamination on Real Estate, Volume 9, Issue 2, Pages 91-116, June 2020.
Diego Salzman & Remco C.J. Zwinkels; 2020, Journal of Rea Estate Literature, behavioural Real Estate, Volume 25, Issue 1, pages 77-106, June 2020.