Saturday, December 17, 2005

A Random Walk

You would think, given my blog title and my past research, I would have been able to spot the Random Walk. But I think I got the first one wrong?? However I did it auf deutsch, so that may have been my problem. I got the second and third ones right. The secret is the following: They generate the artificial series, by restricting it to the same start and end point. I'm not sure I can quite grasp how they generate a random walk from this, but remember a random walk crosses its mean less often then a stationary process.

The computer-generated price process is constructed such that its closing prices at the beginning and at the end of the year perfectly correspond to those of the real stock. However, the closing prices of the real stock may significantly deviate from the artificial ones during the year. In order for the computer-generated time series to look as realistic as possible its prices only change on days with positive trading volume in the real stock.

The standardized trading volume of the real stock is calculated as "Trading volume of the real stock on day t divided by the average trading volume during the depicted year."

Keywords: Random Walk, Stock Prices, ECO301

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