Paradigm, Vol. VII, No.

1, January-June, 2003 1

An Empirical Analysis of Asset Returns and

Inflation
Deepak Chawla·
Amit Sharma..

ABSTRACT
In this article we have attempted to determine various
assets that could provide a possible hedge against inflation.
The data for the period 1980-81 to 2000-01 used in the study
is collected from RBI website namely rbi.org.in and the
Handbook of Statistics on Indian economy. The returns on
seven assets were considered. The wholesale price index is
used to compute inflation rate. The results indicate that gold
is an over hedge against total inflation as well as on the
expected and unexpected inflation. Silver is an over hedge
against only expected inflation. The BSE sensex index is an
over hedge against total as well as the expected inflation
when the return on asset versus the inflation rate measure was
used as computed on a continuously compounded basis.
None of the remaining assets are hedges against inflation.
The study concludes with suggestion for future research.

INTRODUCTION

Inflation is one of the most important macroeconomic variables. In

general terms inflation means a continuous increase in the general price level.
Inflation could be defined as the ratio of change in the general price per year
expressed in percentages. Computation of the inflation rate is done with the
use of a price index; which expresses the current price in relation to its value
in the base period. There are basically two types of indices, the Laspeyre's
Index and the Paasche's Index. The difference between the two is that the
former takes the base year quantities while the latter takes the current year
quantities for the computation of the index. The common price indices used
in India are the GDP deflator, the wholesale price index and the consumer
price index. The significance of inflation lies in its ability to cause
purchasing power risk. Inflation reduces the real value of money and hence
decreases purchasing power. Consumers thus have to take inflation into
consideration whenever they are talking of some future purchase. To counter
Professor, IMI, Delhi
0

Alumnus,IMI, Delhi,CurrentlywithING-VYSYABank.
00

We thank Ms. Vandana Sehgal for her help in computer runs and data processing & Ms. Sudeshna Basu for her help in data
collection.

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this purchasing power risk, consumers invest their surplus money in assets so
as to cover inflation. The assets that are able to neutralize the effect of
inflation are called hedges against inflation. According to Bodie ( 197 6) there
can be different definitions of inflation hedges. He says that a security is an
inflation hedge if it eliminates or reduces the possibility of the real rate of
return falling below a specified level. An inflation hedge can also be
described as an asset whose real return is independent of the inflation rate.
Bonnekamp ( 1978) says that the hedging properties of an asset may serve to
reduce the variability of future real wealth. Bodie (1979) contends that
hedging is not only important for individual investors, who are more
interested in the real value of their investment portfolio in terms of
purchasing power over goods and services than in the dollar values, but also
for institutional investors such as pension funds. Such institutional investors
are concerned about the real value of their assets because their liabilities are
linked to wage rates. Various physical and financial assets such as gold,
silver, stock, bonds, real estate etc. have been traditionally used as hedges
against inflation. According to Ganesan & Chiang (1998), an asset is
considered to be a hedge against inflation when its returns move on a one-for-
one basis with inflation. An asset is said to be a complete hedge against
inflation if its returns move on a one for one basis with both expected and
unexpected inflations. Expected inflation is that components of total
inflation which is explained by the returns on risk-free assets, whereas
unexpected inflation is the unexplained or the residual part.

LITERATURE REVIEW

Lintner (1975) proposed a new theory to explain observed relations

between inflation and returns on equity market. He identified effects of
inflation on security markets and financial behaviour. He observed that as
against the tenets of the classical Fisher William's model which states the
real returns to the ownership of capital goods are invariant to the general price
level & the real present values of the flows of real returns and the real
capitalization rate are unaffected by current or expected inflation, the
empirical evidence showed stock prices and returns to be negatively related
to inflation. He states that for a firm maintaining a fully synchronized steady
state rate of growth in real terms the dependence on external financing varies
directly with realized inflation rates. Fama ( 197 5) tested the efficiency of the
US market to predict inflation rates using relevant information. He tested if
there was a relationship between the one period nominal interest rate
observed at a point in time and the one period rate of inflation observed
subsequently. He used data on one to six month US Treasury Bills and
observed that during the period 1953-1971 there were definite relationships
between nominal interest rates and rates of inflation subsequently observed.

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An Empirical Analysis of... 3

Fama (ibid) used autocorrelations and least squares regression to establish

these relations. He concluded that during the said period the US bill market
was efficient as the nominal interest rates summarized all information about
future inflation rates. He also found the expected real returns on bills to be
constant during the period.
Nelson and Schwert (1977) pointed out certain shortcomings in Fama's
(ibid) model. They argued that the relative magnitude of the measurement
errors occurring in Fama's model were not powerful enough to reject the
hypothesis that the ex ante real rate is constant. The authors suggested the
use of more powerful tests. They suggested that the low autocorrelation
observed in ex post real rates in Fama's model indicated strong auto
correlative and sizeable variation in the ex ante real rates as the latter was
accompanied by forecast errors. They showed that the autocorrelation
function of the ex post real rate ofinterest could be close to zero even if the ex
ante real rate was variable and highly auto correlated. This they thought was
because of the relatively large variance of errors in expectation of inflation.
The authors also used the time series properties of the rate of inflation to
construct a predictor of inflation based on the past history of inflation rates.
They found the coefficient of the time series predictor to be large and
significant. The authors finally concluded that individual past inflation rates
contain very little information about future states of inflation. They also
concluded that the market was inefficient in accumulating information
contained in past inflation rates.
Nelson (1976) tried to investigate empirically the relation between
returns on common stock and the rate of inflation over the post-war period.
He applied the Fisher hypothesis, which states that the expected rates of
return consist of a "real" return and the expected rate of inflation and the real
return does not move systematically with the inflation rate, on common
stocks. The Fisher hypothesis predicts positive correlation between the
returns on stock and the inflation rates. Nelson (ibid) regressed the monthly
returns on a diversified portfolio of common stocks on monthly rates of
inflation measured by the consumer price index. The results showed that the
rates of return and inflation had a uniform negative correlation which was
statistically significant. Bodie ( 197 6) estimated the effectiveness of common
stock to serve as hedge against inflation. This effectiveness was defined as
the proportional reduction in the variance of real return from a risk free bond
when a representative well diversified portfolio of common stocks is
combined with the bond. Bodie (ibid) used the Markowitz Tobin mean
variance model for selection of the optimum portfolio. He used two
parameters for the effectiveness of common stock as an inflation hedge. The
first of these was the ratio of the variance of the non-inflation stochastic
component of the real return on common stocks to the variance of
unanticipated inflation. The hedging effectiveness is inversely related to this
variance ratio. The second parameter was the difference between the nominal

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Paradigm4

return on the risk free bond and the coefficient of unanticipated inflation in
the equation for the real return on equity. The hedging effectiveness is
directly related to the absolute value of this difference. Bodie (ibid) used
annual, quarterly and monthly data for the period 1953-1972 and estimated
the above parameters using regression. The real return on equity was found
to be negatively correlated to both anticipated and unanticipated inflation.
Bond, Rubens & Day (1988) tested the hedging effectiveness of various
financial instruments and their component returns against inflation on an
after tax basis. One of their main objective was to determine whether positive
hedges would still remain so after taxes are taken into consideration. The
authors used the Livingston survey data as a measure of expected inflation
and measured hedging effectiveness against three types of inflation namely
actual, expected and unexpected. They measured hedging effectiveness for
three components namely total returns, appreciations only and
dividends/interest for common stock and government bonds. Hedging
effectiveness was also measured for after tax returns on Treasury bills. They
regressed the monthly returns for these instruments against actual, expected
and unexpected inflation across three time periods July 1953 to December
1986, July 1953 to June 1969 and July 1969 to December 1986. It was found
that over the entire period only common stock total returns and appreciation
and treasury bills provided positive real rates of return. It was also found that
the market underestimated the actual rate of inflation. Ratner (1990)
reexamined the Fama and Schwert ( 1977) investigation of asset returns and
inflation from 1953 through 1971, and also extended the results from 1970
through 1987. He found that government and corporate bonds formed a
minor hedge against expected inflation. Common stock returns were found
to be negatively related to the expected rate of inflation. Ratner (ibid) also
suggested the use of a lagged twelve month moving average of inflation
instead of the treasury bill rate as a proxy for expected inflation A significant
negative relationship between inflation and asset returns was found to exist in
the 1950's and 1960's. Randall and Suk (1999) investigated transitional
effects of inflation rates and compared them with the steady state effects.
They tested the hypothesis that the change and level of anticipated inflation
are jointly significant variables in affecting stock returns and also tried to
ascertain which of the two variables is more important.
Wurtzebach, Mueller and Machi (1991) have carried out a study to
examine the relationship between the performance of commercial real estate
and inflation. They examined real estate performance during both high and
low inflation periods. They found that real estate did provide an inflation
hedge. A major difference was found between the hedging effectiveness of
office and industrial properties. Vacancy rates were found to have a strong
impact on property performance.
The work of Lintner (1975), Nelson (1975), Bodie (1976), Ratner (1990)
could be summarized as indicating that stocks are not a hedge against

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An Empirical Analysis of... 5

inflation. Further the returns on stocks are negatively correlated with

inflation rates. Although Fama (1975) believed the real rates ofreturns to be
constant over time, many authors including Nelson & Schwert (1977), have
shown evidence to the contrary. The work of Weretzeback, Mueller and
Machin ( 1991) has shown that real estate can provide a hedge against
inflation.

OBJECTIVES OF THE STUDY

We have noted that though some work has been done abroad to determine
assets which provide hedge against inflation, no empirical work is available
in the Indian context. The assets whose returns were considered in
researches abroad were stocks, bonds and real estate. These studies did not
take into consideration the returns on assets like gold and silver in which
Indians usually invest.
Indian investors have traditionally been risk averse and are fearful of
investing in assets that are even moderately risky. They are also slow to
adopt newer investment avenues. The security of the original capital, tax
angle and comfort level are the major considerations for any common Indian
investor. Therefore, assets like gold & silver, bank deposits, units of
government sponsored mutual funds like UTI have been the most popular
investment avenues in India. Indians are some of the biggest consumers of
gold worldwide. Almost every Indian family however big or small it may be
has some investment in gold. It is found that investment in gold increases
with increase in household income. The investment in gold, silver and real
estate is inherent in the Indian psyche. Apart from gold & silver, investing in
units of UTI has been a popular choice amongst Indians. Several market
surveys have shown that in the Indian psyche investment in units of UTI is
seen to be as safe as the investment in government securities.
Other investment avenues such as the stock market, debt market and
mutual funds etc., although being increasingly popular are way behind the
above-mentioned assets in terms of net investments. Stock markets are
generally viewed as means to earn wealth quickly leading to speculative
behavior. This behavior has proved to be the nemesis of many Indian
investors who have time and again been stung by the booms and busts of the
stock market. Such bitter experiences have further alienated the Indian
investor from these investment avenues. The fact that a significant part of the
Indian investing public is uneducated further widens this bridge.
The present study considers assets like gold, silver, stocks, units ofUTI
and fixed deposits of commercial banks and examines their potential
effectiveness to provide hedge against total inflation and expected &
unexpected inflation. The returns on real estates are not considered because
ofnon-availability of data.

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DATA AND METHODOLOGY

The entire data used for the study is taken from the RBI website namely
rbi.org.in and the Handbook of Statistics of Indian economy. The data was
collected for the prices of gold (per 10 gms.) and silver (per kg) in Mumbai
market for the period 1979-80 to 2000-01 . To compute the inflation rate we
used the data on wholesale price index for all commodities for the period
1979-80 to 2000-01. The data on wholesale price index was available with
base 1970-71 = l 00, 1981-82 = 100 and 1993-94 = I 00. The time series on
wholesale price index used for the study was converted into base 1981-82 =
100 by using appropriate multiplier. To compute the return on the BSE
Sensex the annual average of share prices indices data was collected for the
period 1979- 80 to 2000-01.
The data on interest rates of deposits of major commercial banks for the
periods 1 to 3 years, over 3 years and up to 5 years, above 5 years, and yield
rates of units of UTI for the period 1980-81 to 2000-01 was collected. For
some of the periods, figures have been obtained on the interest rate range
which was averaged out to obtain a smooth series. The government
securities represent risk-free assets. The annual data on the weighted
average of interest rates on Central government dated securities was also
collected.
Data was available on price levels for gold and silver in Mumbai market,
BSE Sensex index with base 1978-79 = 100 and wholesale price index with
base 1981-82 = 100. This data was used to compute returns on respective
assets and the inflation rate. Returns/inflation rate could be computed using
once in a year only or continuous compounding basis. If it is done on once in
a year basis, we have to compute the percentage rate of change of the
concerned variable over the previous period. In case it is on a continuous
basis the formula used is

y*
t = In(~) x 100,
yt-1
1
where Y, is the variable ofinterest •
For testing whether a particular asset is a hedge against inflation, we
could use the total inflation rate as well as expected and unexpected inflation
rates. The expected inflation rate is that part of the total inflation rate which
is explained by the return on risk free asset, and the residual part is the
unexpected inflation rate. To compute this we hypothesize the following
regression model.

IR = a+ J3R r + E - - - - - - (1)
I for details see Gupta (200 I)

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An Empirical Analysis of... 7

Where Total inflation rate

Return on risk-free assets
Parameters to be estimated
Random error.

If&_ and ~ are the ordinary least squares estimates of a and ~ respectively,
then the expected inflation rate is given by

IE = &. + ~ ~ - - - - - - (2)

Therefore, the estimate of unexpected inflation rate is obtained as

The hypothesis of hedge against inflation may be tested using the following
regression models.

zi = a + b IE + c Iu + e - - - - - - (4)

and

Where Zi is the return on ith asset.

Model no. 4 incorporates both expected and unexpected inflation rates as

explanatory variables. To test whether these are hedges against inflation we
need to examine, if both b & care greater than or equal to one. If both b & c
are equal to one, it means that the return on that particular asset is a complete
hedge against both expected and unexpected inflation. If both b & c are
strictly greater than one, it means that the return on that particular asset is an
over hedge against both expected and unexpected part of inflation.
Similarly, ifb is greater than one and c is less than one, it means that the return
on the asset is a complete hedge against expected inflation whereas it is not a
hedge against unexpected part of inflation.
Similarly, the slope coefficient of model no. 5 namely r 1 can be
interpreted. If r 1 is equal to one, the corresponding return on that asset is a
complete hedge against total inflation. If it is greater than one, it is an over
hedge against total inflation and if its value is less than one, it is not a hedge
against total inflation.
In this study returns I inflation rate used is as computed by using both
once in a year and continuous compounding basis.

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ESTIMATION AND RESULTS

First of all, we estimated the expected and unexpected part of inflation.

For this the regression of total inflation rate on return on risk free asset was
attempted. In this study, return on risk free asset is represented by the return
on Central Government Securities. Two measures of inflation rate were
used; one where the compounding was done on once in a year basis and the
other where the compounding was done on a continuous basis. The
estimated regression results for both the measures are giving below:

Compounding Once in a Year Base:-

15.14 0.64~
(3.15) (1.5)
R =0.11
2

Compounding on a Continuous Base:

14.01 0.57~
(3.20) (1.5)
2
R =0.10

Both estimated equations have poor fit. The slope coefficient is

insignificant in both the cases at 10% level of significance. The above
estimated regression equations were used to compute expected and
unexpected inflation rate as given by equations (2) and (3) respectively.
These were computed for both measures of inflation. The results are
presented in Table 1.
The estimates of expected and unexpected inflation rate as obtained in
Table 1 on the basis ofboth the definition ofreturn/inflation rate were used to
estimate model no. 4. The estimation was carried out using ordinary least
square method of estimation. The results are presented in Tables 2(a) & 2(b)
respectively for the cases where compounding is done on once in a year and
on continuous basis.
On theoretical grounds one would expect both expected and unexpected
components of inflation rate to be directly related to the returns on an asset.
By examining the results in Tables 2( a) & 2(b) we observe that the value ofR
2

for each of the estimated equation in two cases is almost similar. The
similarity is also observed in magnitude and signs of the estimated
coefficients in both the cases, the only exception being the case for BSE
sensex index. The coefficients of both expected and unexpected inflation
have a negative sign in explaining the return on BSE sensex when return I
inflation rate is computed on once in a year compounding basis. The

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An Empirical Analysis of... 9

negative signs were also observed in the researches of Lintner ( 1975), Nelson
(1975), Bodie (1976) and Ratner (1990). When return I inflation rate is
computed on a continuous compounding basis, these coefficients have
positive signs.
The results indicate that only gold is an over hedge against both expected
and unexpected inflation in both the cases. We observe that in Table 2( a), one
percent increase in expected and unexpected rate of inflation increases return
on gold by 3.551 and 1.694 percent respectively. However, when return on
asset I inflation rate are computed on a continuous compounding basis it is
observed that a one percent increase in expected and unexpected inflation
rate increases return on gold by 3.577 and 1.646 percent respectively. The
results in both cases are similar. Again we find that silver is a over hedge
against the expected component of inflation using both the definitions of
return I inflation rate. However, it is not a hedge against the unexpected
component of inflation. It is also observed that in the case of returns on
commercial banks deposits of duration 1 to 3 years, 3 to 5 years, above 5
years and yield on units of UTI, the coefficients of expected component of
inflation has a negative sign whereas the component of unexpected inflation
has got positive sign using both the definitions of return I inflation rate. Even
where positive signs are found, the returns on such assets are not hedges
against inflation as the corresponding slope coefficient is less than unity.
The value ofR is poor in the case of silver, commercial banks deposits of
2

duration above 5 years and BSE sensex index in Tables 2(a) & 2(b). The
statistical significance of the coefficients of the variables as indicated by one
tailed t statistic is indicated by * and ** at 1 percent and 5 percent level of
significance respectively.
The results of estimation of model no. 5 where returns on various assets
was regressed on total inflation rate are presented in Tables 3(a) & 3(b),
where return I inflation rate used was for once in a year and on continuous
compounding basis respectively. The signs and magnitudes of intercept and
slope terms are almost similar in Tables 3(a) & 3(b) except for the case on
BSE sensex index. The slope coefficient of total inflation rate is negative
when return I inflation rate is computed using once a year compounding and
is positive and greater than one when compounding is done on a continuous
basis. However, in both these cases the coefficient is statistically
insignificant. All the remaining cases have expected sign except for the case
ofreturn on commercial banks deposits of duration above 5 years. None of
the slope coefficient except for the case of return on gold is significant. The
coefficient of total inflation rate is significant at 1 percent level for the
2
regression of return on gold in Tables 3(a) & 3(b). The value of R is
consistently poor in all cases in Tables 3(a) & 3(b) except for the case of
return on gold. It is seen however, that only gold is providing an over hedge
against inflation in both the cases as it evident from the slope coefficient of
inflation rate variables which is strictly greater than 1 in Tables 3(a) & 3(b).

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CONCLUSION

In this study we have considered the return on seven assets and have
observed that gold is an over hedge against total inflation as well as on the
expected and unexpected inflation. The silver is an over hedge against only
expected inflation. The BSE sensex index is an over hedge against total as
well as the expected inflation when we compute the return I inflation rate
using continuous compounding basis. None of the other assets provide a
hedge against inflation. As a matter of fact in most of the cases there was a
negative relationship between expected inflation and the return on the assets.
When returns of various assets are regressed on total inflation, most of the
slope coefficients have expected signs but are less than one and therefore are
not hedges against inflation. It is suggested that the future work may take
into consideration various lag I lead values of the inflation rate to examine the
returns on various assets.

References :

• Bodie, Zvi (1976), "Common Stocks as a Hedge Against Inflation",

The Journal ofFinance, Vol. 31, No. 2, May, pp.459-470.
• Bodie, Zvi (1979), "Hedging Against Inflation", Sloan Management
Review, Fall, pp. 15-24.
• Bond, Michael T.; Rubens, Jack H. & Day, William J. (1988),
"Hedging Effectiveness of Financial Assets in an After-Tax
Framework",AmericanBusinessReview, June, pp. 9-20.
• Boonekamp, C.F.J. (1978), "Inflation, Hedging, and the Demand for
Money", The American Economic Review, Vol. 68, No. 5,
December, pp.821-833.
• Fama, Eugene F. (1975), "Short-Term Interest Rates as Predictors of
Inflation'', The American Economic Review, Vol. 65, No. 3, June,
pp. 269-282.
• Fisher, Irving (1930), "The Theory of Interest", New York:
Macmillan.
• Ganesan, S. & Chiang, Y.H. (1998), "The Inflation-Hedging
Characteristics of Real and Financial Assets in Hong Kong", Journal
of Real Estate Portfolio Management, Vol. 4, Issue 1.
• Gupta, G. S. (2001), 'Macro Economics Theory and Application",
Tata Mc-Graw Hill Publishing Co. Ltd., New Delhi.
• Lintner, John (1975), "Inflation and Security Returns", The Journal
ofFinance, Vol. 30, No. 2, May, pp. 259-280.
• Nelson, Charles R. & Schwert, G. Willam (1977), "Short-Term
Interest Rates as Predictors of Inflation: On Testing the Hypothesis
that the Real Rate of Interest is Constant", The American Economic

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An Empirical Analysis of... 11

Review, Vol. 67, No. 3, June, pp.478-486.

• Nelson, Charles R. (1976), "Inflation and Rates of Return on
Common Stocks", The Journal of Finance, Vol. 31, No. 2, May, pp.
471-483 .
• Randall, Maury R. & Suk, David Y. ( 1999), "Inflationary Concerns
and Stock Returns: An Alternative Perspective", American Business
Review, January, pp. 123-126.
• Ratner, Mitchell (1990), "A Re-examination of Inflation and Asset
Returns", American Business Review, June, pp. 80- 85.
• Wutzebach, Charles H.; Mueller, Glenn R. & Machi, Donna (1991),
"The Impact of Inflation and Vacancy of Real Estate Returns", The
Journal ofReal Estate Research, Vol. 6, No. 2, Summer, pp.153-168.

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Paradigm12

Table - 1 : Estimate of Expected and Unexpected Inflation Rates

Using Once a Year Compounding Using Continuous Compounding

Year
Expected Rate of Unexpected Rate of Expected Rate of Unexpected Rate of
Inflation (IJ % Inflation (Iu) % Inflation (IJ % Inflation (Iu) %

1980-81 10.615 7.629 9.979 6.779

1981-82 10.448 -1.123 9.830 -.914

1982-83 9.759 -4.859 9.216 -4.432

1983-84 9.161 -1.63 8.682 -1.421

1984-85 8.717 -2.245 8.286 -2.015

1985-86 8.009 -3.596 7.654 -3.336

1986-87 7.816 -1.995 7.482 -1.824

1987-88 7.9 0.239 7.557 .267

1988-89 7.803 -0.347 7.471 -.279

1989-90 7.745 -0.287 7.419 -.226

1990-91 7.797 2.463 7.465 2.302

1991-92 7.559 6.179 7.252 5.621

1992-93 7.121 2.937 6.862 2.722

1993-94 7.012 1.34 6.765 1.256

1994-95 7.481 5.019 7.184 4.594

1995-96 6.291 1.798 6.122 1.656

1996-97 6.33 -1.725 6.156 -1.654

1997-98 7.411 -3.009 7.120 -2.812

1998-99 7.507 -1.558 7.207 -1.428

1999-00 7.565 -4.296 7.258 -4.041

2000-01 8.093 -0.935 7.729 -.816

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An Empirical Analysis of... 13

Table - 2(a): Estimates of "Z; = a + b h + c lu + e"

Using Returns/Inflation Rate Compounded Once in a Year Basis

s. Dependent Variable Estimated Coefficients & t-ratios ( ) of

RZ
No. Used as Return on
Constant IE lu

1. Gold -21.263 (-1.505) 3.551 (2.032)** 1.694 (2.814)* 0.401

2. Silver -10.950 (-0.744) 2.167 (1 .190)** 0.08 (0.130) 0.074

Commercial banks'
3. deposits of duration 1 16.305 (15.367)* -0.826 (-6.295)* 0.133 (2.953)* 0.729
to 3 years

Commercial banks'
4. deposits of duration 3 14.873 (11.532)* -0.524 (-3.284)* 0.10 (1.811)** 0.439
to 5 years

Commercial banks'
5. deposits of duration 14.220 (9.993)* -0.411 (-2.335)** 0.034 (.559) 0.243
above 5 years

6. Units of UTI 23.705 (6.763)* -1.379 (-3.181)* 0.385 (2.575)* 0.482

7. BSE sensex -2.847 (-0.060) -2.351 (-0.399) -1.520 (-0. 749) 0.038

Table - 2(b): Estimates of "Z; =a+ b h + c lu + e"

Using Returns/Inflation Rate Compounded on a Continuous Basis

s. Dependent Variable Estimated Coefficients & t-ratios ( ) of

R2
No. Used as Return on
Constant IE lu

1. Gold -20.937 (-1.512) 3.577 (1 .993)** 1.646 (2.719)* 0.387

2. Silver -11.601 (-0.808) 2.281 (1.226) 0.07 (0.115) 0.078

Commercial banks'
3. deposits of duration 1 16.776 (14.787)* -0.926 (-6.299)* 0.147 (2.958)* 0.729
to 3 years

Commercial banks'
4. deposits of duration 3 15.171 (10.973)* -0.587 (-3.278)* 0.108 (1.788)** 0.436
to 5 years

Commercial banks'
5. deposits of duration 14.454 (9.489)* -0.461 (-2.334)** 0.04 (0.541) 0.242
above 5 years

6. Units ofUTl 24.491 (6.554)* -1.546 (-3.192)* 0.426 (2.609)* 0.486

7. BSE sensex -5.158 (-0.126) 2.885 (0.544) 1.256 (0.702) 0.042

Note: I. *and** indicate significance of coefficients at I% and 5% level respectively.

2. The data on Yield on Units of UT! is considered.

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Table - 3 (a): Estimates of "Z; =ro + ri Ia+ U"

Using Returns/Inflation Rate Compounded Once in a Year Basis

s. Dependent Variable Estimated Coefficients & t-ratios ( ) of

R2
No. Used as Return on
Constant Ia

1. Gold -7.976 (-1.606) 1.891 (3.322)* 0.367

2. Silver 3.976 (0.765) 0.303 (0.508) 0.013

Commercial banks'
3. deposits of duration 1 9.437 (13.601)* 0.03 (0.398) 0.008
to 3 years

Commercial banks'
4. deposits of duration 3 10.411 (17.800)* 0.03 (0.498) 0.013
to 5 years

Commercial banks'
5. deposits of duration 11.035 (19.755)* -0.013 (-0.208) 0.002
above 5 years

6. Units of UTI 11.082 (6.848)* 0.198 (1.065) 0.056

7. BSE sensex -8.796 (-0.540) -1.608 (-0.861) 0.038

Table - 3 (b): Estimates of "Z; =r. + ri Ia+ U"

Using Returns/Inflation Rate Compounded on a Continuous Basis

s. Dependent Variable Estimated Coefficients & t-ratios ( ) of

R2
No. Used as Return on
Constant Ia

1. Gold -7.677 (-1.616) 1.844 (3.211)* 0.352

2. Silver 3.573 (0.721) 0.298 (0.498) 0.013

Commercial banks'
3. deposits of duration 9.407 (13.000)* 0.04 (0.424) 0.009
1to3 years

Commercial banks'
4. deposits of duration 10.395 (17.034)* 0.04 (0.502) 0.013
3 to 5 years

Commercial banks'
5. deposits of duration 11.041 (18.943)* -0.015 (-0.209) 0.002
above 5 years

6. Units of UTI 10.944 (6.495)* 0.225 (1.103) 0.060

7. BSE sensex 6.031 (0.441) 1.423 (0.860) 0.037

Note: 1. * and ** indicate significance of coefficients at 1% and 5% level respectively.

2. The data on Yield on Units of UT! is considered.

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