Posted: January 29th, 2016

Behaviour of stock price, and stock returns, over time. Do prices “trend upwards”?

• Behaviour of stock price, and stock returns, over time. Do prices “trend upwards”?
• Nature of stock price, and stock returns, over time. Are they normally distributed?
• Are stock movements predictable? Analysing “Up” and “Down” movements.
• Modelling stock price movements. A Binomial tree model can be used to obtain a probability distribution of future prices.
• Statistical analysis of “Up” and “Down” movements. We can test whether stock prices appear to fluctuate “randomly” by assessing whether the proportion of “Up” and “Down” movements are equal.
• Correlation between stock price returns. We can analyse whether current stock returns and past returns (over either a single, or many, time periods) are independent.
• Modelling stock price returns. We can try and predict future stock returns from past returns (over either a single, or many, time periods) using linear regression.
• Abnormal stock returns “appear” to exist. For example, stock returns seem to be higher in January compared to all other months. We can perform a statistical analysis to formally test this.
• Stock prices are often analysed using technical trading rules; this is an attempt to produce “superior” investment strategies. We analyse a particular trading rule involving moving averages.