Returns on common stocks The return on a stock is the change in its market price plus any dividend payments made. Total return is usually expressed as a percent of the beginning price. The figure below shows a histogram of the distribution of the monthly returns for all common stocks listed on U.S. markets over a 273-month period.28 The extreme low outlier represents the market crash of October 1987, when stocks lost 23% of their value in one month. Monthly percent return on common stocks 0 80 20 40 60 25 20 15 10 5 0 1 5 0 15 Number of months (a) Describe the overall shape of the distribution of monthly returns. (b) What is the approximate center of this distribution? (c) Approximately what were the smallest and largest monthly returns, leaving out the outliers? (d) A return less than zero means that stocks lost value in that month. About what percent of all months had returns less than zero?

Hypothesis testing Null hypothesis use “=” signs Assume null hypothesis is true until you find evidence to reject Status quo, no change Mean of normal distribution P value Equivalent to probability, small evidence against the null If p value is low the null shall go, which mean if the p value is lower than the null you have enough evidence to reject it. Alternative hypothesis Tells us what probability we are calculating under the curve Uses signs = Experimental hypothesis Level of significance A p value that is used to determine if we will accept or reject the null hypothesis. If you reject null hypothesis then you are saying that the alternati