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Professional Data Analysis DR HAB.. EWA KUSIDEŁ F112, TUESDAY 10.00-11.30 LECTURE NO 4 [email protected] Homework Let’s imagine the tosters (from problem and project task) are a snobish good and that quantity demanded is contrary of the above (i.e. 5,6,7,8,9,10 at a price of 10,12,14,16,18,20). What is the sign of correlation coeficient between price and demand? What is shape of demand curve? Is the power of correlation coeficient high? Estimate the parameters of the demand curve Calculate and interpret parameters of new demand curve Anwers to the problem and project task Demand Interpretation of demand curve • What is the sign of correlation coeficient • If x (price) grows (falls) by 1 unit (1 between price and demand? - negative pound) then y (demand) falls • Is the power of correlation coeficient (grows) by 0,5 unit (millions of high? – very high pieces) • Estimate the parameters of the demand • What happens to the demand (y) curve – y=-0,5x+15 when price falls by 2 pounds. • The demand increases (grows) by 1unit (million of pieces) • If price increases by 5 units then 12 demand decreases by 2,5. 10 • What should we do with the price if 8 y = -0,5x + 15 we want to increase our demand by 6 2 units. The price must decrease by 4 4 units. 2 0 0 5 10 Price 15 20 25 Relationship between two variable y=α0 + α 1x + where: y- explained variable, left-hand side variable x- explanatory variable, right-hand side variable,’ - disturbance term (error, random, stochastic disturbance term) α 0, α1 -structural parameters of equation Beta coeficient in finance Beta (β) is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which calculates the expected return of an asset (x) based on its beta and expected market returns (x). y=α0 + βx + https://www.youtube.com/watch?v=jvk-Lkwd6S4 Beta interpretation A beta of 1 indicates that the security's price moves with the market. A beta of less than 1 means that the security is theoretically less volatile than the market. A beta of greater than 1 indicates that the security's price is theoretically more volatile than the market. http://www.money.pl/gielda/archiwum/indeksy/ Example For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market. Conversely, if beta is 0.65, it is theoretically 35% less volatile than the market. Many utilities stocks have a beta of less than 1. Conversely, most high-tech, Nasdaq-based stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk Example from polish stock market 2016-08-26 2016-08-29 2016-08-30 2016-08-31 2016-09-01 2016-09-02 2016-09-05 2016-09-06 2016-09-07 2016-09-08 2016-09-09 2016-09-12 2016-09-13 2016-09-14 2016-09-15 2016-09-16 2016-09-19 2016-09-20 2016-09-21 2016-09-22 2016-09-23 2016-09-26 2016-09-27 2016-09-28 2016-09-29 2016-09-30 2016-10-03 2016-10-04 2016-10-05 2016-10-06 2016-10-10 2016-10-11 2016-10-12 2016-10-13 2016-10-14 2016-10-17 2016-10-18 2016-10-19 2016-10-20 2016-10-21 2016-10-24 2016-10-25 2016-10-26 2016-10-27 2016-10-28 2016-10-31 2016-11-02 2016-11-03 2016-11-04 WIG 20 LPP 1776 1777 1798 1794 1762 1768 1788 1791 1810 1793 1754 1731 1728 1737 1746 1734 1750 1756 1758 1776 1762 1740 1733 1735 1730 1710 1725 1754 1762 1762 1766 1757 1760 1728 1720 1714 1721 1745 1749 1752 1783 1786 1780 1795 1818 1815 1766 1767 1758 WIG 20 % LPP % 4570 4540 4719 4780 4548 4232 4310 4320 4200 4290 4141 4133 4146 4186 4161 4049 3950 3911 3922 3973 3910 3822 3820 3860 3970 3943 3935 4500 5100 4953 5039 5001 5025 5075 5066 5200 5100 5489 5800 5605 5730 6004 5770 5663 5610 5666 5880 5991 5616 0,1% 1,2% -0,3% -1,8% 0,3% 1,2% 0,2% 1,1% -0,9% -2,2% -1,3% -0,2% 0,5% 0,5% -0,7% 0,9% 0,3% 0,2% 1,0% -0,8% -1,3% -0,4% 0,1% -0,2% -1,2% 0,9% 1,7% 0,5% 0,0% 0,2% -0,5% 0,2% -1,9% -0,5% -0,3% 0,4% 1,4% 0,3% 0,2% 1,7% 0,2% -0,3% 0,9% 1,3% -0,2% -2,7% 0,1% -0,5% -0,7% 3,9% 1,3% -4,9% -7,0% 1,9% 0,2% -2,8% 2,1% -3,5% -0,2% 0,3% 1,0% -0,6% -2,7% -2,4% -1,0% 0,3% 1,3% -1,6% -2,2% -0,1% 1,0% 2,8% -0,7% -0,2% 14,4% 13,3% -2,9% 1,7% -0,8% 0,5% 1,0% -0,2% 2,6% -1,9% 7,6% 5,7% -3,4% 2,2% 4,8% -3,9% -1,9% -0,9% 1,0% 3,8% 1,9% -6,3% 20.0% y = 1,2518x + 0,0053 15.0% 10.0% 5.0% -3.0% -2.0% -1.0% 0.0% 0.0% -5.0% -10.0% 1.0% 2.0% beta LPP=1,25 interpretation LPP=1,25*WIG20+0,0083 If WIG20 grows (falls) by 1% then LPP grows (falls) by 1,25%. LPP is recommended for investors with high risk appetite. Homework (paper version) Calculate beta parameter for chosen stock from polish stock market. 2. Decide whether the stock is for aggressive (high risk appetite) or defensive (low risk appetite) investor. 3. Interpret beta parameter. 1.