Question: A research analyst follows the monthly price data for the Dow Jones Industrial Average for the years 2008-2010. The accompanying table shows a portion of
A research analyst follows the monthly price data for the Dow Jones Industrial Average for the years 2008-2010. The accompanying table shows a portion of the price data. The analyst wants to test the random-walk hypothesis that suggests that prices move randomly over time with no discernible pattern.
Date................................ Adjusted Closing Price
1/2/2008........................................... 12,650.36
2/1/2008........................................... 12,266.39
⋮............................................................... ⋮
12/1/2010........................................... 11,577.51
a. Use the method-of-runs above and below the median to test the null hypothesis of randomness against the alternative that there is a trend or cyclical pattern at the 5% significance level.
b. Can the research analyst conclude that the movement of the Dow Jones Industrial Average is consistent with the random-walk hypothesis?
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a b The median DJIA is 1033505 Date Adj Close Adj Close Median Runs 122008 1265036 231531 A 212008 1... View full answer
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