Tracking Nifty: A Cointegration Based Approach

Times Journey, Vol.1, No.1, August 2012, RNI: DL No.171, ISSN: 2278-6546, p35-56

20 Pages Posted: 15 Sep 2015

See all articles by Sayantan Kundu

Sayantan Kundu

Indian Institute of Management (IIM)

Date Written: August 1, 2012

Abstract

This paper deals with formulation of Partially Replicating Index Tracking Portfolio with the use of cointegration. The paper is partly a replication of Christian L. Dunis & Richard Ho (2005) with Indian stock market data. As NIFTY is an index based on free float market capitalization, a simple stock selection procedure of selecting stocks with highest market capitalization are used. Also progressively moving window portfolios are created and the dynamics of the portfolios are analyzed over a testing period of fourteen months. The essence of this study is to create a tracking portfolio in simple regression based approach which does not need any optimization. The resulting portfolio, as based on long-run cointegrating relationship, does not require frequent rebalancing and saves turnover cost.

Keywords: Tracking, portfolio, NIFTY, cointegration

JEL Classification: G10, G11,

Suggested Citation

Kundu, Sayantan, Tracking Nifty: A Cointegration Based Approach (August 1, 2012). Times Journey, Vol.1, No.1, August 2012, RNI: DL No.171, ISSN: 2278-6546, p35-56, Available at SSRN: https://ssrn.com/abstract=2658184

Sayantan Kundu (Contact Author)

Indian Institute of Management (IIM) ( email )

Calcutta
India
913324678300 (Phone)
913324678307 (Fax)

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