The Basics of Financial Econometrics: Tools, Concepts, and Asset Management Applications

APPENDIX A

Descriptive Statistics

In this appendix, we review descriptive statistics. In contrast to inferential statistics that we describe in Appendix C, the objective in descriptive statistics is to quantitatively describe data. In inferential statistics, the objective is to draw conclusions and make predictions based on the data.

BASIC DATA ANALYSIS

Determining the objective of the analysis is the most important task before getting started in investigating the data using financial econometric methods. Data are gathered by several methods. In the financial industry, we have market data based on regular trades recorded by the exchanges. These data are directly observable. Aside from the regular trading process, there is so-called over-the-counter (OTC) trading, from which may be less accessible. Annual reports and quarterly reports are published by companies in print or electronically. These data are available also in the business and finance sections of most major business-oriented print media and the Internet.

If one does research on certain financial quantities of interest, one might find the data available from either free or commercial databases. Hence, one must be concerned with the quality of the data. Unfortunately, very often databases of unrestricted access such as those available on the Internet may be of limited credibility. In contrast, there are many commercial purveyors of financial data who are generally acknowledged as providing accurate data. But, as always, ...