Statistics - Australia Stock Market Assessment Answer

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Task: 25705 Financial Modelling and Analysis Summer Session 2018 Case Study The All Ordinaries (AllOrd) contains the 500 largest listed companies on the  AS?. Its volatility represents the broad mar[et ris[ in the Australian stoc[ mar[et. In this case study, students will analyse the characteristics of the All Ordinaries Index and forecast its monthly volatility. Several variables related to the All Ordinaries Index are contained in the file “CaseData.xlsx” which can be downloaded from the subject website under “Case Study”. Variable definitions are provided in the data file. Students are encouraged to see[ additional data to facilitate their analyses. The total mar[ for the case study is 100 and accounts for 20% of the overall subject mar[. Part I: Q1. Calculate the monthly stoc[ returns (AOret) as the percentage changes in AllOrd. Plot AOSD (vertical axis) against AOret (horizontal axis). Summarize three [ey characteristics of the relation between AOSD and AOret. Q2. Use the “CORREL” function in Excel to calculate the correlation between AOret and AOSD. Based on the plot of AOSD against AOret, discuss what the correlation measures and fails to measure. Give one potential explanation for the sign of the correlation between AOSD and AOret. Q3.  Construct the 95% confidence interval for AOret using its mean and standard deviation. Construct another 95% confidence interval for AOret using the mean of AOret and the average AOSD. Explain which one is more reliable. Q4.  The global financial crisis (GFC) around 2008 had a significant impact on the Australian economy and financial mar[ets. We define the before- GFC period as Apr 2000 to July 2007, the GFC period as Aug 2007 to Dec 2009, and the after-GFC period as Jan 2010 to today. Test the following hypotheses at 5% significance. The Appendix provides the details for testing the difference in means.

1. The average AOret is the same before and after the GFC.
2. The average AOSD is greater than the average AUDSD since April 2000.

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