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One of the members mentioned something that made an impression on me.
"All Returns are Normally Distributed, until they are not....". I read
the books and articles with the great plots of Log Normal and Normal
Distribution Plots. So I tried to do this myself, and my plots were not
even close to the ones in the articles and books. Must be something wrong
with the way I did it? Well now I am not so sure. In the attached gif,
you can see that the plot in the upper left looks like the Log Normal and
Normal Distribution plots you see in the text books. The other plot is
for 360 days of GE closing prices, using the exact same formulas for both
plots. This does not look like the plots in the text books. My conclusion
is that there is kind of "phase" shift of price distribution over time
and changing market conditions . They can be very Normal, almost Normal,
somewhat Normal and partly Log normal and most of the time very Log
normal. Or something along those lines. By plotting these for myself I
can see this transition unfold and will be better prepared for a
potential "...until they are not..." event. I am still open to the fact
that I have done this wrong and would welcome suggestions (with real
examples) of how to do this.
Thanks
Ron McEwan
Attachment Converted: "f:\eudora\attach\dist plot.gif"
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