Calculate the probability of monthly return income, Basic Statistics

1. It is often a good idea to start by visualizing the data. Time series data should have "time" on the horizontal axis. What are you going to have on the vertical axis? If you use a line plot for some of the stocks, it will not take long for you to realize what I mean. Remember that the figures should provide comparable information.

2. In addition to the time series, you may also want to use correlation plots, but in that case you will have to first calculate them, the correlations, that is (just wondering: do they change if you use different time frequencies, like monthly and yearly?)

3. Something that might be interesting to know is which stocks have performed best in the last twenty years ("performance" as in returns performance, and this is often calculated as annual percentages, right?) Has performance been consistent through those years? Is the past a good predictor of the future?

4. Let us imagine that someone is telling us that it pays off to invest in the stock market as it has historically provided positive real returns. Can you test whether he/she is right? Her friend is telling you that the average has historically been 10% in real terms. How about that? You would need some more data to do this properly. You do not have it, but you could at least think of a wish list.

5. Historically, what is the probability that Microsoft will yield a positive monthly return? If I wanted to maximize the positive return probability, where should I invest? And if I wanted to maximize the >3% monthly return probability?

6. Are all companies equally risky? Toys, coffee, computers, telecom... they operate in very different industries, or maybe not as different as one would think? By the way, how do you measure risk? I can think of a few ways that we have discussed in class.

7. At one point, someone said that what was good for GM was good for America and what was good for America was good for GM. Do you think that this claim applies to any of the companies in the dataset?

8. We have briefly discussed the CAPM in class. Now you have an opportunity to show off not only your statistical skills but your knowledge of Greek.

9. In 2001-2002, financial markets experienced the burst of the internet bubble. More recently, they have suffered the international banking debacle. Is there evidence of these events in the data? You might want to think of interesting ways of comparing their relative impact. Are there any links to specific company characteristics? I am thinking of things like capital intensity, firm size and others that you might find relevant.

10. At the end of the day, what matters is this: where would you invest your money? Where would you advice your grandmother to invest? She will also want to know whether / why your investment is different from hers.

Posted Date: 2/28/2013 1:36:12 AM | Location : United States

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