2012Fall7646 Homework 6

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Overview

In this homework you will conduct "event studies" to assess the impact of stock pricing events on future prices. There are two major parts:

1. Create an event study profile of a specific "known" event on S&P 500 stocks, and compare its impact on two groups of stocks.

The event is defined as when the actual close of the stock price drops below $5.00, more specifically, when:

  • price[t-1] >= 5.0
  • price[t] < 5.0

an event has occurred on date t. Note that just because the price is below 5 it is not an event for every day that it is below 5, only on the day it first drops below 5.

Evaluate this event for the time period January 1, 2008 to December 31, 2009. Compare the results using two lists of S&P 500 stocks: 1) The stocks that were in the S&P 500 in 2008 (sp5002008.txt), and 2) the stocks that were in the S&P 500 in 2012 (sp5002012.txt). These equity lists are in the directory QSData/Yahoo/Lists. You can read them in using the QSTK call ....

You should plot both of these studies and include the images in your report. If the performance of the event seems to depend on which list of equities you use, please consider why that is, and add a discussion of this to your report.

2. Create an event defined by the indicator you created in the last homework. Include a plot (or more than one if you wish) in your report. Analyze the performance of your event. Answer these questions:

  • Is it possible to make money using this event?
  • If it is possible, what investing strategy would you use? Include details of entry (buy) and exit (sell), how many days would you hold?
  • Is this a risky strategy?
  • How much do you expect to make on each trade?
  • How many times do you expect to be able to act on this opportunity each year?
  • Is there some way to reduce the risk?

Take a look at the file QSTK/Examples/EventProfiler/tutorial.py. Use tutorial.py as an example from which to build your own studies.

See QSTK_Tutorial_9 for more info on the event profiler.

Deliverables

Submit these files:

  • events.py Python program that creates an event study using YOUR indicator.
  • report.pdf a PDF including the graphs asked for above, along with text of your report.

How to submit

Go to the t-square site for the class, then click on the "assignments" tab. Click on "add attachment" to add your files. Once you are sure you've added the files, click "submit."