ABSTRACT
Now, we can plot this data, I have chosen just to plot Sep. 7, 2011 to Sep. 7, 2012 in Figure 14.1.
Note that the stock price looks pretty random (and has been trading sideways for the last year). But it is not so easy to see how to model this. To get at a model, it is a useful idea to look at stock returns rather than actual stock prices. One reason for this choice is that it is the return on a stock that matters to an investor, not so much the dollar change ($1 on a $10 stock is very dierent from $10 on a $1000 stock). We begin by dening “simple” daily stock returns
return(day
Price(day Price(day Price dayk
k k k)
) ) ( )= − −
−
1 1
We can make a third column on our spreadsheet that has this. e rst data cell (cell C2) in the third column will have the formula (B2 − B3)/B3,
because our sheet has the data loaded with the most recent data at the top. Aer entering that cell you can drag the formula down to get the entire column populated with the same denition.
