Jidny Rubaiyat Shoummo

2016-2-88-006
Financial Economics – ECO 529
Assignment One

Topic: Descriptive Statistics of Return for BDCOM Online Ltd from 2009 till date

1. Calculate average return – daily, weekly and monthly. Also, calculate the natural log
return – daily, weekly and monthly and represent graphically.

Days Weeks Months

Number 2339 498 117
Average Return 0.038% 0.113% 0.286%
Average natural log Return -0.008% -0.037% -0.219%

Average Daily Return and Average Daily Natural Log Return:

Arithmetic mean of daily return is 0.038%. But we can see the daily stock price decreasing from BDT 34.1
to BDT 28.2 which tells us the overall return is negative - which is reflected in the geometric mean –
average daily natural log return -0.008%

Average Daily Return and Average Weekly Natural Log Return:

Arithmetic mean of weekly return is 0.11%. But we can see the weekly average stock price decreasing
from BDT 34.1 to BDT 28.34 which tells us the overall return is negative which is reflected in the
geometric mean - the weekly average of natural log return -0.04%

Average Daily Return and Average Monthly Natural Log Return:

Arithmetic mean of monthly return is 0.29%. But we can see the monthly average stock price decreasing
from BDT 36.865 to BDT 28.58 which tells us the overall return is negative which is reflected in the
geometric mean - the monthly average of natural log return -0.22%

Overall, average monthly return > average weekly return > average daily return - thus saying average
return in a longer time horizon is greater than average return in a shorter horizon - i.e. stock price
increased gradually and not erratically.

But that does not show the full picture. The stock price over time did not actually increase but rather
decreased from BDT 34.1 to BDT 28.2. To look at the decreasing price behavior we look at the natural
log value of return – which uses the geometric mean to find the return and correctly expresses the
nature of the return over a time horizon. Here we can see the greater the time horizon the lesser the
average natural log return, thus saying the nature of the stock price change.

Also, although the overall price decreased but average return in all three cases is positive. So, for proper
reflection of the nature of the stock and its returns, natural log value of return should be used by
 page:

0%
10%
20%
30%
40%
0%
10%
20%
30%
40%

-40%
-30%
-20%
-10%
-30%
-20%
-10%
0%
5%

-25%
-20%
-15%
-10%
-5%
10%
15%
20%
Feb-09 W2
Jun-09 W16
W30
Oct-09
W44
Feb-10 W58
Jun-10 W72
Oct-10 W86
W100
Feb-11
W114
Jun-11
W128
Oct-11 W142
Feb-12 W156
Jun-12 W170
W184
Oct-12
W198
Feb-13 W212
Jun-13 W226
Oct-13 W240
Feb-14 W254
W268
Jun-14
W282
Oct-14 W296
Feb-15 W310
Jun-15 W324
Oct-15 W338
Average Daily Natural Log Returns

Average Weekly Natural Log Returns

W352

Average Monthly Natural Log Returns

Feb-16
W366
Jun-16 W380
Oct-16 W394
Feb-17 W408
W422
Jun-17
W436
Oct-17 W450
Feb-18 W464
Jun-18 W478
investors. Daily, weekly and monthly variations of log return are shown in the graph in the following

W492
 2. Calculate variance and standard deviation (of natural log return)

Monthly Weekly Daily

Variance 1% 0.30% 0.09%
Standard Deviation 10% 5.45% 3.02%

Monthly Standard Deviation of 10%, means that the average return has fluctuated by around 10% from
month to month. Comparing which with standard deviation of average daily return (3.02%) and average
weekly return (5.45%) tells us that this investment is more volatile and fluctuating over time.

3. Draw histogram (of monthly natural log return) and impose Normal Distribution. Mention
remarks.

Here, imposing normal distribution on the histogram (w/ 20 bins) we can see the shape is nearly normal
except that the distribution in more steep in the center and has fat tails. The risk phenomenon for this
kind of distribution is called tail risk. Tail risk is a form of investment risk that arises when the possibility
that an investment will move more than three standard deviations from the mean is greater than what
is shown by a normal distribution. So, on the more extreme ends on the return (both positive and
negative) there are more months – although the positive tail is fatter in this case.
4. Draw Quantile Plot. Mention remarks.

Usually in a quantile plot, the 45 degree line represents normal distribution. The closer the plots
are to the line, the similar it is to the normal distribution. Here, we can see in the quantile plot
that the distribution starts above the 45 degree line (which represents the normal distribution)
and gradually goes below the line and ends below it. It starts with decreasing rate of increase,
then ends with increasing rate of increase. This tells us the distribution is fat on both ends (as
previously mentioned in the answer no 3). Although the data is skewed in both ends, it is more
skewed in the right, i.e. positively skewed which we can also see from the histogram in the
previous question.