Posted: September 16th, 2016

Calculate the continuous returns on both indices. Obtain histograms and descriptive statistics up to, and including the November 2007, and then from December 2007 onwards.

CASE STUDY TWO

In this Case Study, you will be looking at the effect of the Global Financial Crisis (GFC) and the Great Recession on Apple stock. In the file called “Apple Inc.xls”, there is monthly data from June, 2001 to June, 2016, on the share price of Apple stock and the Dow Jones Industrials. You will be looking at a number of important dates: December 2007, when the GFC and the Great Recession had officially begun, September, 2008, when the US Government allowed Lehman Brothers, an Investment Bank, to go bankrupt, and June, 2009, when the National Bureau of Economic Research (NBER) declared that the Great Recession had ended.
(a) Obtain line graphs for both the share price of Apple stock and the Dow Jones Industrial average, over the whole period and comment on any similarities or differences between them. (2 marks)

(b) Calculate the continuous returns on both indices. Obtain histograms and descriptive statistics up to, and including the November 2007, and then from December 2007 onwards. Comment on any similarities or differences between them. (2 marks)

(c) For the Apple stock, calculate the 95% confidence intervals for the mean return over the two periods given in part (b). Use the critical t-values from the following website:
https://www.easycalculation.com/statistics/t-distribution-critical-value-table.php (4 marks)

(d) Assume that the returns on the Apple stock has a normal distribution. Using the means and standard deviations previously calculated for each of the two periods, find the probability of getting a negative return on a day selected at random. (4 marks)

(e) Write some brief notes, in point form, describing your results for Case Study Two. Be sure to report any conclusions that you have made, and submit these. You will use them in a later tutorial when you write your final report. (2 marks)