# Predicting the Stock Market - Erie Community College

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```					                                    ERIE COMMUNITY COLLEGE
TITLE III
Basic Skills Project
Interdisciplinary Course Materials

Course: MT001, MT006

Course Outline Topic: Measures of Central Tendency: Mean, Median and Mode

Title: Predicting the Stock Market

Project Description: The student will record the daily average of the DOW or NASDAQ everyday for
2 weeks. Students will then compute the mean, median and mode of their data and record it on a
broken line graph. Students will then use their information to make predictions about the future.

Things to Learn Before Starting the Project: how to compute mean, median and mode. They should
also know how to graph and interpret line graphs.

Author: Colleen Quinn (Mathematics)

Semester Created: Spring 2009

Resources:      www.nasdaq.com , www.dowjones.com , or www.money.msn.com, answer sheet and excel
worksheet.

Contents:      I         Project sheet

II        Introduction and explanation of the Stock Market and the DOW and NASDAQ reports.

III       Project Questions

V         Project Extensions

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Name_________________________________________________________________

Is it possible to predict the Stock Market?

S Stock is a share in the ownership of a company. Companies sell shares of ownership in their
company to raise money to finance operations, plan expansion, and so on.

Holding a company's stock means that you are one of the many owners (stockholders or
shareholders) of a company and, as such, you have a claim (although usually very small) to
everything the company owns. As an owner, you are entitled to your share of the company's
earnings.

For various reasons, investors at different times want to sell their stock or buy more stock. Stock
prices change every day as a result of market forces. The law of supply and demand takes over.
If more people want to buy a company’s stock (demand) than sell it (supply), then the price of
that stock goes up. Should more people want to sell a company’s stock than want to buy it, there
would be greater supply than demand, and the price would go down.

Shares of stock are bought and sold on a stock exchange. Exchanges are places where buyers and
sellers meet and decide on a price. The New York Stock Exchange (NYSE) is the oldest and
largest stock exchange in the United States. It is located on Wall Street in New York City. The
NYSE uses a large trading floor in order to conduct its transactions. It is here that brokers (who
represent the buyers and sellers) meet and shout out prices at one another in order to strike a
deal. You can think of these exchanges as an auction place.

Stock exchanges provide an orderly trading place for stock. The exchange does not have to be a
physical location, however. There may be no central location or floor brokers whatsoever.
Trading may be done through a computer and telecommunications network of dealers. The
NASDAQ (National Association of Securities Dealers Automated Quotations) is the most
popular exchange of this type. The NASDAQ is becoming a serious competitor to the NYSE.
(There are other exchanges in the United States and there are many stock exchanges located in
just about every country around the world.)

Chances are you have heard of the NASDAQ Composite or the Dow (the informal name of the
Dow Jones Industrial Average or DJIA) or some other market average. Market averages are
designed to indicate how companies traded on the stock market are doing in general. (What these
averages tell is the general health of stock prices as a whole. If the economy is "doing well," then
the prices of stocks as a group tend to rise. If it is "doing poorly," prices as a group tend to fall.
The averages show these tendencies in the market as a whole. If a specific stock is going down

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while the market as a whole is going up, that tells something. Or, if a stock is rising but it is
rising faster or slower than the market as a whole, that tells something as well.)

The Dow is one of the most watched indicators of stock market performance. It is an index that
shows how certain stocks have traded. It tracks 30 American stocks that are considered to be the
leaders of the economy and are on the NASDAQ and NYSE. (Big companies like General
Motors, IBM and Exxon are the kinds of companies that make up this index. The companies are
chosen to give a broad reflection of corporate industry in the U.S.) The Dow Jones Industrial
Average is simply the value of these 30 large, industrial stocks averaged together following a
specific formula.

The NASDAQ Composite is a stock market index of all of the common stocks and similar
securities listed on the NASDAQ stock market. This means that rather than having 30 stocks like
the Dow, the NASDAQ Composite includes several thousand stocks. It is highly followed in the
U.S. as an indicator of the performance of stocks of technology companies and growth
companies. (Since both U.S. and non-U.S. companies are listed on the NASDAQ stock market,
the index is not an exclusively U.S. index.)

There are other averages as well. For example, the S&P 500 is the average value of 500 different
large companies and the Russel 2000 tracks the average of 2,000 smaller companies.

Stock Basics

http://www.investopedia.com/university/stocks/

http://money.howstuffworks.com/personal-finance/financial-planning/stock.htm

Definitions of Terms

www.investorwords.com

Exchanges

www.nyse.com

www.nasdaq.com

Dow Jones

http://www.djaverages.com/

http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average#Companies_included_in_the_DJIA

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http://www.djindexes.com/

http://www.djindexes.com/DJIA110/learning-center/ (History of the Dow)

NASDAQ Composite Index

http://dynamic.nasdaq.com/dynamic/composite_0.stm

Activity:

Based on the information above, decide if you would like to follow the DOW or the NASDAQ reports. For two
weeks, record the daily average for your choice. You can find this information in the Buffalo News or online at
various websites, including www.nasdaq.com , www.dowjones.com , or www.money.msn.com . You can record
your information in the table below, be sure to label the dates from which you obtained your information.

Day 1        Day 2        Day 3         Day 4        Day 5        Day 6          Day 7

Day 8        Day 9        Day 10        Day 11       Day 12       Day 13         Day 14

a.) Compute the Mean from your collected data ______________

b.) Compute the Median from your collected data _______________________

c.) Compute the Mode from your collected data __________________

d.) What is the Range of your collected data _______________________

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e.) Record your data in a line graph below:

f.) Is there a pattern on your line
graph? Explain.

g.) On which day did your data
increase the most? Did anything
significant happen in the U.S. or
World News that day? Do you
think this may have contributed
to the increase?

h.) On which day did your data
decrease the most? Did anything
significant happen in the U.S. or
World News that day? Do you
think this may have contributed
to the decrease?

i.) Based on your information and
data collection, make a prediction
for Day 15’s daily average. What
factors helped you determine this
prediction?

Extensions

1.) Students can express the data in alternative graphs, such as a Bar Graph, of Circle Graph.
2.) Students can determine and compute other statistical information, such as: minimum and
maximum, percentiles and quartiles. Students can also graph a Box and Whisker Graph based on
this information.

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