Factors Influencing the Movement of G-Sec
Factors Influencing Movement of G-Sec. Yields: An Empirical Approach
Prepared By
Gurmeetsingh S Sikh
Ph.D. Scholar
Sardar Patel University
Vallabh Vidhyanagar
Anand, Gujarat.
Abstract
On a day-to-day basis, market participants look at many other variables as well e.g. crude prices, commodity prices, GDP growth rates, etc. However, the end implication of these factors has been captured in the statistical study done in this paper. For Example, higher crude or commodity price would result in higher inflation, which has been studied here. A higher GDP growth rate would give a larger scope of RBI to hike rates (in case inflation is high); we have studied the co-relation with Repo and Reverse Repo Rates. Higher investment by FIIs in Indian equities may result in higher rupee liquidity; we have studied the impact of system liquidity on yield levels. At a given point of time, one factor may be overbearing over others e.g. if inflation is too high or if system liquidity too much in surplus it may overshadow other parameters. We have covered 14 quarters to smoothen out any such impact. As we can see in the multiple regression analysis, the variables we have taken explain 80% of the movement in 10-year benchmark Gilt yield levels. The balance may be attributed to sentiments and other factors.
Factors Influencing Movement of G-Sec. Yields: An Empirical Approach
Introduction
The biggest challenge for any analyst in any market is to predicting future movements:
This paper is an attempt to:
(A) Delineate the factors relevant for taking a view on movement of yields of government securities in the secondary market, and
(B) Establish the degree of correlation between the variables, as a measure of relevance for using that parameter. For our analysis, we have represented yields by the 10-year benchmark government security.
We have broadly divided factors into two categories;
(A) Fundamental i.e. factors that are relevant as per economic theory; and
(B)
Prepared By
Gurmeetsingh S Sikh
Ph.D. Scholar
Sardar Patel University
Vallabh Vidhyanagar
Anand, Gujarat.
Abstract
On a day-to-day basis, market participants look at many other variables as well e.g. crude prices, commodity prices, GDP growth rates, etc. However, the end implication of these factors has been captured in the statistical study done in this paper. For Example, higher crude or commodity price would result in higher inflation, which has been studied here. A higher GDP growth rate would give a larger scope of RBI to hike rates (in case inflation is high); we have studied the co-relation with Repo and Reverse Repo Rates. Higher investment by FIIs in Indian equities may result in higher rupee liquidity; we have studied the impact of system liquidity on yield levels. At a given point of time, one factor may be overbearing over others e.g. if inflation is too high or if system liquidity too much in surplus it may overshadow other parameters. We have covered 14 quarters to smoothen out any such impact. As we can see in the multiple regression analysis, the variables we have taken explain 80% of the movement in 10-year benchmark Gilt yield levels. The balance may be attributed to sentiments and other factors.
Factors Influencing Movement of G-Sec. Yields: An Empirical Approach
Introduction
The biggest challenge for any analyst in any market is to predicting future movements:
This paper is an attempt to:
(A) Delineate the factors relevant for taking a view on movement of yields of government securities in the secondary market, and
(B) Establish the degree of correlation between the variables, as a measure of relevance for using that parameter. For our analysis, we have represented yields by the 10-year benchmark government security.
We have broadly divided factors into two categories;
(A) Fundamental i.e. factors that are relevant as per economic theory; and
(B)