Assignment 1

The main purpose of this homework assignment is to help you develop your spreadsheet skills. This one may appear easy. The assignments will get progressively more involved.
Please download the daily closing prices of ONGC or SBI from NSE website from Jan 2006 to date and get the weekly closing prices for all weeks in the sample period. Weeks end on Fridays (if on a Friday the markets are closed then the previous day, and so on.)

1. Make a time plot of the weekly price data over the sample period of January 2006 to Oct 2008. Paste your plot in a word file and type some general comments on what you see below the plot (e.g., “the price increases exponentially over time”).
2. Make a time plot of the natural logarithm of monthly price data over the same sample period. Again paste and comment. Compare with the plot of the raw data. Why is it generally more informative to look at a plot of the log of prices than a plot of the raw data?
3. Using the weekly price data over the same sample period, compute the “simple” (no compounding) weekly returns (note: investor will get dividend once a year or so and the week in which she gets dividend her return will be higher, to make the exercise simple we are ignoring dividend payouts) Make a time plot of the weekly returns. (Note: you will not have a return for the first weekend of Jan 2006.) Paste and comment, giving the mathematical formula (not the Excel function) used to calculate the simple returns.
4. Using the simple weekly returns, compute simple annual returns for the each week in the sample period (starting in January 2006). (Hint: do not calculate the “annualized” return—i.e., what you would earn if you obtained the same weekly return for a whole year—but instead calculate what the realized return was for the past 52 weeks.) Make a time plot of the annual returns. Paste and comment, giving the mathematical formula used to calculate annual returns.

Welcome

Welcome to Financial Markets. The objective of the course is to make you fully familiar with the working of the financial markets and with their role in the modern economy. It is an extremely exciting subject and never as much fun as when you get to see it for the first time. By quirk of chance you are being introduced to financial markets when they are entangled in an unprecedented imbroglio. May be, by the time the course is over we will see some ray of hope – chances of normalcy returning soon. It is not always that we get to witness such historic developments.

I will use this blog site to communicate with the class. You will find here your homework assignments, required reading papers and often some data sets that may be needed for the assignments. (Students of financial markets are blessed with an enormous amount of data!)

Have fun!

S Singh