Multiple Regression Model Analysis

Model Analysis
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Multiple Regression Model Analysis

Introduction

Stock markets at times look like a luck game to many individuals but the fact is that the entire market is controlled and driven by a system of factors. There are many statistical researches and studies that have been conducted to predict the stock market movements by observing the trend over a period, by identifying factors and their impact on the stock market movement and so on. Of all the studies and researches, it is noted that the stock market movement controlled by the economic factors is significantly accurate and valid. Thus this study has targeted to analyze the impact of various economic factors that are detailed below on the United States stock markets.

The study has considered Standard & Poor 500 index as the reference index for representing the United States stock market. Standard & Poor 500 is the index representing basket of 500 large company’s stock values which are listed either in New York Stock Exchange or in the NASDAR stock exchange. The index value is determined by the Standard & Poor Dow Jones indices and is considered to be the best representation of the US Stock market. This study has considered analyzing the United States Stock market by assessing the market value of this index from 1980 to 2011. Thus 30 years data has been analyzed for this study and the data has been obtained from Yahoo Finance.

From the previous literature and research studies which are well detailed in the Literature review section of the report below, it is understood that the economic factors have got a significant impact on the stock market movement. It has been studied both statistically as well qualitatively understanding the concepts behind each of these economic factors and their relationship with the stock market prices. Thus we have focused on analyzing the impact of economic factors on the price movement and the factors considered includes Consumer Price Index, House Price Index, and Maturity Rate, GDP of the United States and the competing nations, and unemployment rate. Each of these factors has got their own significance in determining the economic position of the nation and thus controls the stock market movement.

Consumer Price Index is a national index of the consumer prices which acts as a source to estimate Inflation rate in any nation’s economy. Consumer Price Index refers to that measure which is the average change over time in the price paid by the consumers for purchasing the same quantity of same goods. It is in general monitored by the Department of Labor. Inflation

also refers to the same but it is estimates as the increase in percentage change of the prices while the prices itself are provided under Consumer Price Index. (US Department of Labor)

Inflation plays a significant role in determining the economy position and thus controls stock market movement. The chart below shows the annual trend of Consumer Price Index for the study period between 1980 and 2011. This study has targeted to understand the impact of consumer price index of the United States over its stock market performance.

CPI
250.00
200.00
150.00
100.00
50.00
0.00
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: (Historic Data CPI)

The next factor considered in this study is House Price Index. Housing bubble was one of the key economic drawbacks that happened in the United States in 20th century which led to severe recession and had a significant impact on the United States Economy. Thus housing price index has been considered as one of the key drivers to identify its impact on the stock market performance of the United States. It acts as a representative of the mortgage rates that are applied in the United States. The index plays a negative relation with the mortgage rate i.e., if the mortgage rate is high, the Housing price index value decreases as the demand for houses falls due to increase in loan rates for buying houses and the index value increase if the mortgage rate

falls as the demand increases. The housing price index data considered for the study is as shown below:

HPI

400.00

350.00

300.00

250.00

200.00

150.00

100.00

50.00

0.00

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980

Source: (US Federal Housing Finance Agency)

In 2008, the mortgage rates in the United States have drastically dropped due to the housing bubble and the index value had increased and now has been maintained.

Producer Price Index is the next factor considered in the study. It is similar to the Consumer price index but this index measures the prices at producer or the wholesale level.

The fourth factor considered in the study is the 10 year Treasury Maturity Rate which is the risk free rate assumed in the United Nations. This is the minimum rate of return expected and hence this factor will have a significant impact on the market performance as the company’s generating revenues below this risk free rate may be considered to be non performing business entities and their values may be low. This risk free rate is determined by the US Treasury and Federal reserved authority based on the daily yield curve of the securities considered. (US Treasury)

Risk Free Rate

16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: (Board of Governors of the Federal Reserve System (US))

Gross Domestic Product also referred as GDP is the next key factor. This represents the size of the nation’s economy and this factor has been considered not only for the United States but also for the competing nations like Germany and Spain in one model and China as well in another model. The GDP growth of the United States during the study period from 1980 till 2011 is as plotted below:

US GDP Growth Rate

14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-2.00%

Due to the economic recession because of the housing bubble, the GDP growth has been negative during the period 2008, 2009. The average growth is noted to be at 5.67% for the entire period of 30 years while it is noted to be 3.64% for the year 2011.

The total GDP is noted, the Chinese economy has been increasing rapidly post 2000 and has almost equaled the United States economy. China being the most populated nation in the world, the potential and the growth is thus seen at a rapid pace with the advancement in the urbanization happening. The GDP when analyzed on per capita basis, the trend is as below:

The GDP per capita is observed to be low for China being the most populous country in the world while the GDP per capita is very high for the United States followed by Germany and Spain. (OECD)

Unemployment Rate is the additional factor considered in the second model of regression adopted in this study as an additional factor. It also acts as a key economical driver and hence has been considered in the second model. The unemployment rate of the United States is observed as below:

Unemployment Rate

12.0
10.0
8.0
6.0
4.0
2.0
0.0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Thus these key economic variables are considered for the study to understand their impact on the stock price movement with the help of statistical results.

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Course Syllabus

Model Analysis

  • Learning And Developing Strategy

    Learning And Developing Strategy

    The role of the learning and developmental strategies in the organization is to manage the talent pool in the organization while at the same time it helps in development of a culture towards the development in the organization. Also this helps to drive the commitments of the people working in the organizations as they feel valued through satisfaction of the developmental needs and career advancements. Thus various strategies that are used by Star Industries are:

    Assessment of learning needs: the focus is placed on understanding of the learning and development needs of the organization including the individual and group needs. This helps the Star Industries to allow for educational programs and better designing of the training programs in accordance with the learning needs of the employees. Also this helps in identification of current skills in the organization and the desired skills and thus bridging the gap.

    Development programs drive: The organization is dedicated to planning for the development of its employees and thus initiates the internal and external training and development initiatives through commitment of sufficient resources in the organization.

    Learning groups: This strategy helps the organization to allow for sharing of knowledge and skills amongst the group members and through the generation of self learned kind of groups in the organization

    Mentoring and Buddy learning: This helps in encouraging and improving of the performance of the individual employees while working with the fellow employees and the mentoring allows the senior or reporting officer or manager to be in the role of a mentor and thus providing training and development of employees while performing the routine activities at workplace.

    On the job learning: This helps in providing challenging task to the workforce and thus promoting the learning of the new skills in order to accomplish these tasks thus promoting a culture towards learning on the job. Job rotation had been used by Star Industries in order to allow learning of multiple skills and abstain from the monotonous nature of jobs.

    STRATEGIC PURPOSE: the purpose of the deployment of various strategies in learning and development in the organization involves improvement in the knowledge, skills and attitude (KSA) framework of the organization. Thus the strategy aims to promote a development and learning culture in the whole organization.

    TARGET GROUPS: In this learning and development strategy at Star Industries, the target groups involve the people whose improvement in various avenues at work would help in improvement of the overall performance of the organization. Here the target groups involve the Team leader and Supervisors whose contribution is important in handling the human resources of the organization and thus managing the people in the organization. Thus improvement in their performance will improve the overall performance of the employees and thus the organization.

    PERFORMANCE GAPS: The Star Industries had been keen in assessing its performance including the performance of the key managers and all the individuals involved in the organization. Thus the learning and development strategy is the key to identification of the actual and desired performance and thus bridging the gap between the actual level of performance of the individuals, groups and the whole organization.

    Star Industries had identified the key areas where the improvement will lead to bridging of the gaps to reach the marked performance standards and they are

    • Managing teamwork- the Star Industries is a large group and thus consists of various teams and groups performing in it. Thus through promoting the team working skills in the employees and development of managerial skills in the various employees like the Plants manager, Human Resources Manager, Supervisors, etc. This will help in better use of resources along with skills present in the human resources organization.
    • Participative decision making- This will help in coordination of work functions amongst the employees and drive their level of commitment towards the organization through better involvement with the organization and promotion of industrial democracy.
    • Collaborative Goal Setting- the setting up of goals and targets through collaboration with the employees who are actually supposed to perform it helps in improving their level of confidence and they are performing better towards their attainment and thus the organizational performance is impacted in a positive manner.
    • Interpersonal and organizational communications- the communication are an inseparable part of any business functioning and thus Star industries is committed towards the betterment of communication between the employees and maintenance of good interpersonal relations to avoid any negative impact on the working of the organization and minimizing of the conflicts through structure and systems in place.
    • Self management- This is a technique that helps the individual employee to gain an insight in to his own performance over the job and understand the various aspects including attitudes and behavior at workplace. Time management is a key skill required in the employees at Star industries and thus the company is directed towards the promotion of self managing practices in its employees. Self reflection is a practice where the employee understands his own learning and development during the course of job performance and thus plans for improvement in own performance. Thus Star Industries is committed to instill reflective practices in its employees and managers.
    • Giving and receiving feedbacks- through instilling an effective feedback mechanism the Star Industries aims to identify the improvement in the performance of the individual employees through gaining feedback from the clients and the managers and making corrective actions. Thus it will help the betterment of the employee performance through feedbacks.
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