Applied Statistics for Finance and Economics Project report Coursework

Applied Statistics for Finance and Economics Project report - Coursework ExampleSince in this selective information we are focused on 2002 to 2006 we see that the seasonal and the cyclic component are present. We take a epoch plot of the consecrates data of home furnishers to investigate if the data exhibit expressive style in this case.From the in a higher place trend we can see that there is linear trend in the returns of the home furnishers. To eliminate trend to make the returns data unmoving, we take the differencing of lag 1 and observe the progress the remains. The time plot of the returns too shows that the return data exhibit trend. Thus from the above analysis of the returns and return squared, the returns can be predicted and has a very high prophetic power while the return squared has very low predictive power.Broadly speaking, a time series is said to be stationary if there is no regular change in the mean (no trend). If there is systematic change in variance an d is strictly midweekly variations (seasonal and cyclic component) are removed. Most of probability theory of time series analysis is concerned with stationary time series and for this reason time series analysis requires one to change a non-stationary time series to a stationary time series analysis so as to use it. In this study we plot the variables and test their stationary using a particular variation of unit line test- the Augmented Dickey-Fuller test. We then difference the time series of return to make the series stationary.After differencing the return data we can observe that the data is stationary. This can be clearly seen in the time series plot of the differenced data at lag. The plot of differenced data of returns below shows that the data is stationary after differencing it once.The bridge trading is a common thing in the trading mart. Literature on match trading, market efficiency and return volatility behavior is plenty for a developed stock market. The study in volves pair trading using the