Question 4.9

4.9 Are McDonald's price changes independent?

Refer to the daily price series of McDonald's stock in Exercise 4.8. Instead of looking at the prices themselves, consider now the daily changes in prices found in the provided data file.

mcd

  1. Using software, plot the price changes over time. Describe the nature of the price changes over time.
  2. Now consider the relationship between a given price change and the previous price change. Create a lag of price changes by following the steps of Exercise 4.8(b). Create a scatterplot of price change versus the previous price change. Does the scatterplot seem to suggest that the price-change series behaves essentially as a series of independent trials? Explain why or why not.
  3. This exercise only explored the relationship or lack of it between price changes of successive days. If you want to feel more confident about a conclusion of independence of price changes over time, what additional scatterplots might you consider creating?

4.9

(a) The price changes over time appear quite random and equally likely to be either positive or negative. (b) There doesn’t appear to be any relationship between the price change and the lag price change. Yes, the series behaves as a series of independent trials because there is no discernable pattern in the plot. (c) Answers will vary.