Random Walk

Introduction The Market Efficiency Hypothesis is one of the mount researched aras of finance. In its weak form, the hypothesis states that the asset equipment casualtys cannot be unyielding based on the past crusades in the tolls. In this report, we essay this conclusion on the popular market indices: Dow Jones Industrial mean(a) (DJIA), S&P 500 and Nasdaq Composite (NSDQ). These three indices are widely followed and considered representative of the US economic situation. In this sectionalisation we go away look at the major characteristics of each of the indices and their movement with the past two decades. Dow Jones Industrial Average (DJIA) consists of 30 constituent companies from various industries in the US, including manufacturing, retail, finance and IT. It is a expense heavy major power and the quantify of the mightiness is the add up of its dower prices divided by a divisor which factors in melody splits and dividend announcements. Being price w eighted, the index is heavily influenced by companies with a higher price irrespective of the market capitalization. The nonchalant index levels for each of the three indices are obtained for the last 20 years and the continuous daily returns are calculated. The time series plots of the index, its returns and the descriptive statistics of the returns are presented in Exhibit 1.

As expected price level of the DJIA is not stationary. For instance, there was a steep sum up 91 to 99, followed by a sudden diminish from until 03, (owing to the dotcom miraculous food and bust), reflecting unstable volatility and mean. We also conducted ADF see to test whole root, the result had a p-v! alue of 0.4261, showing the inability to reject the unavailing hypothesis that the series is non-stationary at 5% significance level. The daily returns have a mean value close to correct as seen from the time series plot and the descriptive statistics. However, the variance is not constant, indicating that heteroskedasticity exists. The huge increase in the volatility may be attributed to the...If you want to get a full essay, pose it on our website: BestEssayCheap.com

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