Over the past few years, May has been the most volatile month on average for the Ghana Stock Exchange and August the least, in this article we will use simulation to assess the statistical significance of this observation and to what extent this observation could occur by chance.
We will be using Daily GSE-CI data for this analysis, in particular we will use the raw daily closing prices from 2011 to June 2022
Excel is a powerful tool used by analyst for modeling but a skill in Python will take your analysis to the next level. In this case study, I’ve explored Python to broaden its application in our financial market for insightful analysis.
A View of the Volatility as Found on the Ghana Stock Exchange
This gives our final Average Monthly Volatility Rankings. Numerically we can see that month 5 (May) is the highest and month 8 (August) is the lowest.
By plotting our Average Monthly Volatility Rankings (AMVR) we can clearly see the most volatile month has been May and the lowest, August.
Now we have established the monthly volatility on the Ghana Stock Exchange. Our next big question is this observation statistically significant and to what extent could this occur by chance?
Lets have this discussion on the next holiday.
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The Concept of Volatility
Risk is a key component of investment; whenever we receive a return, a risk was taken. An arbitrage opportunity exists when returns are obtained without risk. Because arbitrageurs take advantage of these chances as soon as they arise, arbitrage possibilities in finance typically have a brief lifespan.
Variations can be seen in a time series plot of financial asset returns. We occasionally experience both good and negative results. The term “volatility” in finance refers to the ups and downs of the returns.
Investors associate uncertainty with volatility. Market returns oscillate around their mean. The gyration poses a danger.
For long, financial analysts have been looking for the perfect statistic to describe risk. Several measures have come up. Some of these are historical volatility, implied volatility and conditional volatility.
By Kenneth Adu
Founder, The Finance Focus
Phone: 0248556177