Anon

321

Appendix

A

descriptive Statistics

i

n this appendix, we review descriptive statistics. In contrast to inferential
statistics that we describe in Appendix C, the objective in descriptive sta-
tistics 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 mar-
ket 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, for which data 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 sec-
tions 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 purvey-
ors of financial data who are generally acknowledged as providing accurate
data. But, as always, quality has its price.
Once the data are gathered, it is the objective of descriptive statistics to
visually and computationally convert the information collected into quanti-
ties that reveal the essentials in which we are interested. Usually in this con-
text, visual support is added since very often that allows for a much easier
grasp of the information.