Basic Data Description for Financial Modeling and Analysis

MARKUS HÖCHSTÖTTER, PhD

Assistant Professor, University of Karlsruhe

SVETLOZAR T. RACHEV, PhD, DrSci

Frey Family Foundation Chair-Professor, Department of Applied Mathematics and Statistics, Stony Brook University, and Chief Scientist, FinAnalytica

FRANK J. FABOZZI, PhD, CFA, CPA

Professor of Finance, EDHEC Business School

Abstract: We are confronted with data every day, constantly. Daily newspapers contain information on stock prices, economic figures, quarterly business reports on earnings and revenues, and much more. These data offer observed values of given quantities. The basic data types can be qualitative, ordinal, or quantitative.

In this entry, we will present the first essentials of data description. We describe all data types and levels. We explain and illustrate why one has to be careful about the permissible computations concerning each data level.1

We will restrict ourselves to univariate data, that is, data of only one dimension. For example, if you follow the daily returns of one particular stock, you obtain a one-dimensional series of observations. If you had observed two stocks, then you would have obtained a two-dimensional series of data, and so on. Moreover, the notion of frequency distributions, empirical frequency distributions, and cumulative frequency distributions is introduced. The goal of this entry is to provide the first methods necessary to begin data analysis. After reading this entry ...

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