The
table below contains contingency tables for daily comovement of stock prices
with the S&P 500.
Co=movement of Stock Price with S&P 500


Company One


Stock Close<Prior Low

Stock Close Between Prior Low and High

Stock Close>Prior High


S&P Close < Prior Low

12

18

4

S&P Close Between Prior Low & High

26

80

28

S&P Close > Prior High

5

31

48

Company Two


Stock Close<Prior Low

Stock Between Prior Low and High

Stock Close>Prior High


S&P Close < Prior Low

10

21

3

S&P Close
Between
Prior Low & High

19

68

47

S&P Close
> Prior High

14

48

22

Question One: A stock moves in tandem with the market in
three instances  (1) stock price close is below previous day’s low, (2)
stock price close and S&P 500 close are both between prior low and prior
high, and (3) S&P close is greater than prior high. What is the probability these stocks move in
tandem with the market? Is the difference in the likelihoods that these two
stocks move in tandem significantly different from zero?
Answer to Problem One: The
probability that the stock moves in tandem with the market is (12+80+48)/252 or
0.556 for the first company and (10+68+22)/252 for the second stock.
The results of the
significant test for difference in proportion of observations that move in
tandem is presented below.
Proportion Test Results


Variable

Mean

Std. Err.

z

Company One

0.556

0.031302


Company Two

0.397

0.0308192


diff

0.158

0.0439276


under Ho:

0.044493

3.57

Go back to the
contingency table question list for more problems.
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