Blockchain technology is a revolutionary new technology, transforming the standards of transaction in the industry by enforcing security and securing integrity. A special feature of it, Distributed Ledger Technology (DLT) has gone on to improve efficiency of the banking process leading to quicker, simpler execution and completion of the operation.
Thus it is felt that making investments in firms which have been successful in implementing it owing to the added advantage it indicates for the firm. However, it is not enough as there are a lot of factors which can impact the performance of a company. This report focuses on the company DigitalX and aims to gauge its candidature as a potential investment. It takes note of its share price performance as indicator of its success and the findings and subsequent conclusions are presented hence.
The figure shows that the weekly closing prices peaked during May of 2015 and then fluctuated up and down reaching a low around end of 2016 to 2017 and then spiked after October of 2017 again, only to decrease since the beginning of 2018 again. Thus, no regular trend or pattern could be identified from the graph of the given data.
(Current Price –Previous price))/(Previous price) multiplied by 100
Then, the histogram of the weekly returns is:
The price indices of ASX are seen to be more or less stationary with not much linear or period change.
The mean weekly returns for ASX was found to be 0.0693, the median was found to be 0.1425. The standard deviation was found to be 1.8417. The first quartile on the other hand was found to be -0.993 and the third quartile was found to be 1.1659 which means that inter quartile range is 2.159.The skewness measure was found to be -0.16 implying a slight negative skewness and the kurtosis was found to be 0.69. The distribution is thus slightly negatively skewed and leptokurtic (Klingenberg 2017). However it is closer to normal than the distribution for DigitalX.
The weekly returns less than 0 were marked 1 as loss and those greater were marked as 0. The proportion of 1s or that of loss was found to be 0.485 which is the estimated proportion of loss or the empirical probability of loss.
Financial Analysts will often try to model returns on a singular company against a market index – this is sometimes referred to as the market model. Your task is to replicate this model by
|
Coefficients |
Standard Error |
t Stat |
P-value |
Lower 95% |
Upper 95% |
|
|
Intercept |
1.66342718 |
1.39018611 |
1.19655 |
0.23319847 |
-1.0814197 |
4.40827407 |
|
ASX Returns |
0.00494233 |
0.75656029 |
0.00653264 |
0.99479564 |
-1.48884482 |
1.49872949 |
The coefficient for the predictor market return is 0.004 with 95% confidence interval estimate of -1.4888 to 1.498.
|
ANOVA |
|||||
|
df |
SS |
MS |
F |
Significance F |
|
|
Regression |
1 |
0.01375373 |
0.01375373 |
4.2675E-05 |
0.99479564 |
|
Residual |
165 |
53177.4389 |
322.287508 |
||
|
Total |
166 |
53177.4526 |
Again, the residual sum of squares is 53177.4389 which makes up for a lot of the total sum of squares 53177.452. The model is not found to be significant in explain the variation of the stock returns of DLT, given that p-value is greater than 0.05.
|
Regression Statistics |
|
|
Multiple R |
0.00050857 |
|
R Square |
2.5864E-07 |
|
Adjusted R Square |
-0.00606035 |
|
Standard Error |
17.9523678 |
|
Observations |
167 |
The regression model has the multiple R squared and adjusted R squared measures with values 0.0005 and 0.00000025 respectively. This the goodness of fit measures are not that high indicating that the model does not have a very good fit (Draper and Smith 2014).
It is believed that companies incorporating DLT in their business are likely to be more efficient and hence could be good investment. DigitalX being a notable company which has been using DTL is thus being considered as a potential investment. However incorporation of DLT is not the only factor which ensures an investment to be worthwhile. Further research is required to resolve whether it is worthwhile to invest in the company DigitalX. Investigating he stock prices of DigitalX, and comparing with the market index it is seen that DigitalX returns vary more than the market data however over the weeks the spikes in return indices for DigitalX are greater than the dips in magnitude and much higher than market index. The following graph presents the picture as described.
The average return for DigitalX with in the period covered by the available data was found to be 1.66, greater than the average market index for the same period, which was found to be 0.069.
Thus it is anticipated that returns for company DigitalX being higher than the market average implies greater profits. Thus the data suggests that investing in DLT would not be unfavorable and could prove to be beneficial.
Conclusion
Therefore the report concludes that companies incorporating DLT, like DigitalX could serve to be good investment however other factors such as stock price returns, company size, inflation rate also ought to be considered before in the decision making and provided these variables prove to support the expected outcome of DLT proving to give an edge to the company, investment should be made, as in the case of DigitalX
References
Draper, N.R. and Smith, H., 2014. Applied regression analysis(Vol. 326). John Wiley & Sons.
Klingenberg, A., 2017. Elementary Statistics (MTH).
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