Homework 2:   Data analysis of financial time series

Due date:   Tue. 9/11   (with selected presentations in class)
 

Explore Yahoo ``finance'' website .
 

1. Identify a stock of your interest, go to ``historical prices'', download the most recent 1-year daily data to an Excel file.
   • Plot the closing price time series.
   • Obtain a linear trend for the series.
   • Obtain two moving average plots of the series: one with weekly windows (5 days) and another with monthly windows (20 days approximately).
   • Calculate values of the autocorrelation function AC(k) for the closing prices, with lag k = 1, 2, 5, 20.
2. Add an additional column in your Excel file which contains daily returns converted from the above daily closing prices. See Note 1 for more information.
   • Plot the time series for the returns.
   • Obtain a linear trend for the returns.
   • Obtain two moving average plots of the returns: one with weekly windows (5 days) and another with monthly windows (20 days approximately).
   • Calculate values of the autocorrelation function AC(k) for the returns, with lag k = 1, 2, 5, 20.
3. Answer the following questions:
   • Do the two autocorrelation functions (for the daily closing prices and corresponding returns respectively) have significantly different values with each lag k? If they do, what is the implication?
   • What purpose does a smoothing technique (such as the moving average) serve?