Beta of BRIC Markets in Fast Growing Economies

important of BRIC Markets in Fast Growing EconomiesBeta is the risk associated with an addition in coincidence to the food food market underlined. The developing countries/ emergent economies such as Brazil, Russian, India, and china (BRICs) are playing important agency in the world economy as producers of level-headeds and services. The BRIC countries are expected to scram at a stride of more(prenominal) than 8 percent for side by side(p) several years. The main purpose of this investigate is to focal point on these dissolute ontogenesis economies and work protrude the betas of these BRIC markets. A particular focus is condition on the Indian market as India is one of the main contenders in BRIC economies. Indias GDP is expected to be 35 times of its flow rate level. pickings into account the performance of the economy over the years and keeping in mind the study of Goldman Sachs (2003), Indian markets are predicted to be the most create one by 2050. This report als o covers the objectives and the methodology i.e. the Single top executive Model, which the research pull up stakes follow and finally it concludes as the stated objectives ordain be covered and the research result be concluded by August 2010.IntroductionBeta in general term kernel an assets risk in relation to the market or a benchmark. It is caked by using short-term return intervals. An asset with beta of 0 means that it is non correlated with the markets. A haughty beta shows that the asset is correlated to market and it follows the market. A negative beta shows that the asset is negatively correlated to the market. Beta is known as financial elasticity or correlated volatility.Literature reviewAccording to Hodges Taylor Yoder (2003) Beta of stock and puzzle portfolios change drastically with time. Therefore it is difficult to remark beta of for mean horizon. They prove that betas calculated from annual returns chamberpotnot be apply for lond period as it changes w ith time. Single period betas are useful when the investment horizon matches the dimension period which is considered to chance the returns. Generally single index pricing is used to pattern the structure of returns. However, Solnik (1974), mentions that a single index model may fail to capture global and domestic risks and, hence, a multi index model which takes into consideration both factors would be more appropriate. The presence of both risks that enchant assets indicate that neither a purely domestic nor purely international beta of a hostage would be a complete measure of systematic risk. But on the other side, Bartholdy and Riding (1994) used the Dimson and Scholes and Williams methods on NZ info to correct for beta biases. They found that the two beta-correcting methods receive no add on efficiency compared to standard OLS estimators and concluded that OLS estimators are more efficient and are more closure to relevant data. We in that locationfore take after t he simple OLS beta estimation in this study. Ragunathan Faff Brooks (2000) found that the carnal knowledge to the domestic index, betas were always signifi bumt while the betas relative to the international indices were not always significant.The BRIC countries are expected to grow at a rate of more than 8 percent for next several years. The developing countries/ appear economies such as Brazil, Russian, India, and chinaware (BRICs) are playing important mapping in the world economy as producers of goods and services and increasing capital. The quaternity countries went through major transformational changes in their economic structure. Though BRICs countries followed a sustainable ontogenesis path to integrate them self among globalised economy. After a tie of socio-economic transformations in the twentieth century all these countries were replaced by gradual integration in the global economy in the 1980s and 1990s. In late times, on that point is a surge in the global econ omy peculiarly in BRICs countries due to economic liberalisation.According to Bharadwaj (editor) the BRIC countries have many good things going in their favour. China is a leader in manufacturing go- bewilderter in the world and India is number one for services arena (In knowledge technology area),while Russia and Brazil have abundant natural resources. Companies from countries like China and India have intended global ambitions various fields like culture technology, industrial production, service sector, etc. BRIC countries have showed global geopolitical leadinghip in various regions.The new and good changes in economic policies have boosted the developing economies like China, India, Brazil and Russia. Among these countries a new economy is acclivitous and if the current growth level is maintained they will release the global economic player in near future. Wilson, D. and Purushothaman, R. in their paper suggest that in the plan of attack decades large developing count rieslike the BRICs (Brazil, Russia, India and China) will become a great force in the world economy from its current level even above the expectations the investors currently anticipate. It is evident that from the onset of the twenty-first century more than a third of the worlds growth has originated in these countries. So, the approach of new powerhouse economies in the developing world can switching the equation of global economic order is predicted by Bloomberg (2007). It is also intercommunicate that the BRICs economies as a whole could be larger than the G6 in future. thenly the BRIC thesis recognizes that Brazil, Russia, India and China have changed their political systems to embrace global capitalism.Moreover, Brazil, Russia, India and China have long been a favourable destination ofemerging market investors. By Farah, Paolo(2006) This is optimistic for economic growth and hugeinvestment may come to the BRICs in coming decades. The spur in economic growth there is a gre at requirement of broad analysis to get the perfect image of the BRICs economic progress Kumar, Fodea (2007). That is the main purpose of this research, to find the betas of these developing economies and forecast them.In year 2006 India has been worlds second fastest growing economy.Every year at the World Economic Forum in Davos, there is a superstar. Not an item-by-item but a realm as a whole. One region impresses the gathering of global leaders because of a particularly smart Finance minister or a compelling tale of reform. In the decade that Ive been going to Davos, no coun leaven has captured the imagination of the conference and dominated the conversation as India in 2006.( Fareed Zakaria, discussion week issue dated Mar 6, 2006) . Chinas economy has come up by almost 10 percent since 1980Indias is a tale of future, which is coming into knifelike focus. In the study by Goldman Sachs (2003)shows that in coming 50 years, India will be worlds fastest growing economy (lar gely because of its young workforce). The report suggests that in 10 years Indias economy will be larger than Italys and in 15 years larger than that of Britains. By 2040 the worlds third largest economy. By 2050 it will be five times the size of Japans and its per capita income will have risen to 35 times its current level. Predictions like these are a undependable business, though its worth noting that Indias current growth rate is actually high than the study required.Thus we can see from the above information that there is lot of potential of making money in this BRIC economies over coming years. But care has to be taken regarding the risks and hence, I would like to exculpate out this project to investigate Beta of these economies. With a particular focus on the Indian economy.ObjectivesThe objectives of this thesis are to use the data of BRIC markets and scan them to answer the following questionsWhat is the beta of BRIC economies?What is the forecasted beta of the BRIC e conomies?What is the performance of sectors in individual economies?We hope that the payoff of this research will answer these questions and sponsor the investors who invite to invest into these economies.DataThe data to conduct this research will be taken from Bloomberg and the exchanges of the four BRIC economiesBrazilRussiaIndiaChinaThe focus of this research is to find the beta of these markets and compare them, the weekly prices from 2000 to 2008 will be used.MethodologyThe research method of this project will be of a quantitative one. The data required will be secondary data. We will mainly try this data to find out beta of each market. We will tho remove beta of the different sectors and compare the performance of each sector with that of whole market.Single-Index ModelFor our research we will mainly use Single-Index Model. So firstly, we will use the regression equation of the Single-Index model. This can be through with(p) by using the past data of the markets and try ing to find out systematic risk. As this model is linear, we can estimate the sensitivity (beta) coefficient of a security,Ri= ri-rfThe regression equation isRi(t)= i+ iRm (t) +ei(t)Where the intercept of this equation (denoted by the classical letter alpha,) is the securitys expected return which is excess, when the excess return of the market is zero. The slope coefficient i is the beta of the security.Thus we can find beta. Beta is the securitys sensitivity to the index.The anticipate Retun-Beta RelationshipAs E(ei)=o we can get think of of E(ri), thus we can get a new equation return-beta relationship with the help of single index model.E(Ri)= i+ iRmThe above equation explains that the securitys risk premium is due to risk premium of the index. The market risk premium is calculate by the beta or sensitivity. It is also called systematic risk premium. whatsoever reminder is given in the form of alpha. It is also called as non market premium. To explain this in a simple exa mple, if the value of alpha is positive which means that the security is underpriced, or in other words there is a chance to earn an extra premium. As the price of the security is brought to equilibrium the value of alpha is driven to zero. Thus this is how a relation can be established between Return and Beta.Thus by using the above Single-Index Model we can find betas of particular markets and we can also find betas of particular sectors of that market. Once this is done we can try to compare the results of that of Indian market with rest of BRIC economies.Conclusion / Expected outcomeThe expected outcomes of the project research areA beta value for BRIC economies.The forecasted beta of BRIC economies.Sector vise beta of the economy.With the help of these information investors can make a good decision regarding their investments into these booming economies. They will be able to make the most of these markets.Time LineI will be following a time-line to complete this research. I in tend to percolate all my data by May using Bloomberg and the exchanges of respective markets. By June and July I will be interpreting and analyzing the collected data. 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