The purpose of this report is using FTSE All-Share index to comparing the short-term volatility was higher in the period of the ‘financial crisis’, or higher during the period of the ‘financial recovery’ – or was there no difference. Therefore, we let σ1 represent the period of ‘financial crisis’ and let σ2 represent the period of ‘financial recovery’, so the analysis is testing for evidence of a difference between σ1 and σ2 specifically, the null hypothesis：
H0: σ1 = σ2
H1: σ1 ≠ σ2
Why FTSE ALL-Share
The reasons why we choose the FTSE ALL-Share to analyze the short-term volatility between the periods of ‘financial crisis’ and ‘financial recovery’ is because FTSE ALL-Share index representing 98-99% of UK market capitalization, the FTSE All-Share index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices (Ftse.com, 2014). Due to FISE 100 share index only show the top of 100 highest market capitalization companies listed on the London Stock Exchanged, therefore, it cannot representing all of companies in finical marketing. However, the 2008 finical crisis is global finical crisis and not only impact on the top 100 of companies but also impact on the rest companies. Therefore, we choose the FTSE All-Share to do the analysis.
Interpreting ‘short-term volatility’
Volatility is statistical measure of the dispersion of returns for a given security and market index. ‘Volatility can be measured by using standard deviation or variance between returns from that same security or market index’ (Investopedia, 2009). In simple term, volatility is using to measure the amount of uncertainty or risk about the size of changes in a security’s value. Generally, a higher volatility means that the price of the security can change dramatically in a short time period, and a lower volatility means that a security’s value does not changed or at a steady range over a period of time.
In our group, we decided to choose a month in the middle of each period to represent short -time period. The data in the period from 1st June 2008 to 30st June 2008 will be sample used for calculate the volatility of ‘financial crisis’; the data from 1st April 2011 to 30st April 2011 was chosen be our sample for ‘financial recovery’.
The approaches of measuring volatility
1) The figures show 21 sample data we chosen from the period of ‘financial…