Sunday, November 20, 2011

Another failed test of financial data normality

Chart: Robust non-parametric runs test for tick data for LOTOS, June 2005 - October 2011

Back in May 2010, I presented a preliminary analysis of the probability of consecutive changes and conditional consecutive changes for daily closing prices for S&P500 and EURUSD.

I mentioned then some observed deviations from the random walk model, and postulated further research. I've just had an opportunity to check this behavior on intraday data for a number of stocks listed on the Warsaw Stock Exchange.

I have modified the methodology and changed some assumptions in the test procedure. Above you can see the result of the new test performed on the tick data for Grupa Lotos S.A.

Deviations from the model probability are clearly visible even when a pretty wide confidence band based on the sampled distribution probability is implied to filter out uncertain signals.

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