Analysis of Financial Data

Chapter 1. Introduction

There are many types of professionals working in the world today who are interested in financial data. Academics in universities often derive and test theoretical models of behavior of financial assets. Civil servants and central bankers often study the merits of policies under consideration by government. Such policies often depend on what is happening with stock markets, interest rates, house prices and exchange rates. In the private sector, practitioners often seek to predict stock market movements or the performance of particular companies.

For all of these people, the ability to work with data is an important skill. To decide between competing theories, to predict the effect of policy changes, or to forecast what may happen in the future, it is necessary to appeal to facts. In finance, we are fortunate in having at our disposal an enormous amount of facts (in the form of "data") that we can analyze in various ways to shed light on many economic issues.

The purpose of this book is to present the basics of data analysis in a simple, nonmathematical way, emphasizing graphical and verbal intuition. It focuses on the tools used by financial practitioners (primarily regression and the extensions necessary for time series data) and develops computer skills that are necessary in virtually any career path that the student of finance may choose to follow.

To explain further what this book does, it is perhaps useful to begin by discussing what it does not do. Financial ...