Daily & Monthly Stock Return Analysis

Dean K. Ganzhorn Jr.

DKG11@my.fsu.edu

Abstract: After running analyses of daily and monthly returns on the DowJones Industrials, Value-Weighted index and Equal-Weighted index, one can
conclude that these returns do not follow a normal distribution. Even though
monthly returns follow a normal distribution more than that of daily returns,
one cannot confidently conclude they follow a normal distribution. In
addition, we can conclude that in times of economic crisis, stock return
normality is more skewed.

Part A: Calculating means and standard deviations of daily and

monthly stocks returns.
Means of Daily and Monthly Stock Returns 2000-2008
Daily
Daily
Monthly
Monthly
(EW)
(VW)
(EW)
(VW)
0.000536
0.00002
Mean
8
57
0.0049020 -0.0016487
Standard
0.010898
0.01334
Deviation
1
01
0.0620258
0.0467747

The returns for the equal-weighted portfolio and value-weighted

portfolio are different because of how they weigh all of the different stocks.
The equal-weighted portfolio equally weighs every company, therefore,
smaller firms have more of a presence. In the value-weighted portfolio, larger
firms are weighted more, therefore, larger firms have a larger impact on the
mean and standard deviation.

Part B: Are stock returns normally distributed?

1.
Table B-1

Table B-1 shows the frequency distributions for daily returns of CocaCola, Boeing and McDonalds. This table also shows what the expected
frequency for daily returns should be assuming a normal distribution. This
table provides information that daily stock returns do not uniformly follow the
expected distributions. Specifically, the outer tails are basically not expected

to happen at all, but as you can see all three of the stocks do not follow a
normal distribution.

2.
Table B-2
Extreme Values and Studentized Ranges for Daily Returns 2002-2007
Smallest
Largest
Std.
Studentized
Company Name
Return
Return
Dev.
Range
0.016
MICROSOFT CORP
-0.1138
0.1112
5
13.6597
0.011
COCA COLA CO
-0.1006
0.0549
3
13.7493
0.014
DU PONT E I DE NEMOURS & CO
-0.0656
0.0987
2
11.5832
0.014
EXXON MOBIL CORP
-0.0846
0.0973
2
12.8073
0.015
GENERAL ELECTRIC CO
-0.0927
0.0953
0
12.5795
INTERNATIONAL BUSINESS
0.015
MACHS CORP
-0.1012
0.1125
3
13.9980
0.013
CHEVRON CORP
-0.0668
0.0544
6
8.8899
0.025
APPLE INC
-0.1504
0.1316
5
11.0723
0.014
UNITED TECHNOLOGIES CORP
-0.0874
0.0983
8
12.5609
0.010
PROCTER & GAMBLE CO
-0.0738
0.0453
2
11.6930
0.017
CATERPILLAR INC
-0.1452
0.0895
3
13.5933
0.016
BOEING CO
-0.0807
0.0702
6
9.1008
0.015
PFIZER INC
-0.1115
0.0771
7
12.0094
0.011
JOHNSON & JOHNSON
-0.1585
0.0821
9
20.2494
0.012
3M CO
-0.0896
0.0712
7
12.6235
0.017
MERCK & CO INC
-0.2678
0.1303
3
23.0169
0.017
DISNEY WALT CO
-0.0903
0.1462
9
13.1915
0.016
MCDONALDS CORP
-0.1282
0.0923
1
13.6995
0.019
JPMORGAN CHASE & CO
-0.1811
0.1604
4
17.6365
0.013
WAL MART STORES INC
-0.0666
0.0803
4
10.9563
0.014
NIKE INC
-0.0676
0.0860
9
10.3290
AMERICAN EXPRESS CO
-0.0847
0.1100
0.016
11.6720

INTEL CORP

-0.1852

0.1082

TRAVELERS COMPANIES INC

-0.0805

0.1181

VERIZON COMMUNICATIONS INC

-0.1185

0.0927

HOME DEPOT INC

-0.1407

0.1073

CISCO SYSTEMS INC

-0.1131

0.2439

GOLDMAN SACHS GROUP INC

-0.0665

0.0854

UNITEDHEALTH GROUP INC

-0.0965

0.0654

Average

-0.1107

0.1006

7
0.023
2
0.016
1
0.015
9
0.018
0
0.023
4
0.017
2
0.015
8
0.016
2

12.6254
12.3681
13.2817
13.7461
15.2497
8.8070
10.2487
12.9999

Table B-2 shows the smallest return, largest return, standard deviation
and studentized range of the Dow-Jones Industrials returns from 2002 to
2007. The studentized range is calculated by (Max-Min)/Std. Dev. A
studentized range of 7.99 or greater only occurs once in every 200 samples
of a normal distribution. Since every companies studentized range is greater
than 7.99, you can conclude that the daily returns of the Dow-Jones
Industrials are not normally distributed.
3.
Table B-3

Table B-3 shows the frequency distributions for monthly returns of

Coca-Cola, Boeing and McDonalds from 2002 to 2007. This table also shows
what the expected frequency for monthly returns should be assuming a
normal distribution. For these three stocks, you can see that the frequency
distributions follow more of a normal distribution over daily stock returns.
However, there is still some skewness, specifically in McDonalds. This is not
sufficient evidence to conclude that monthly stock returns follow a normal
distribution with a high confidence. Although, they do follow a normal
distribution much closer than daily stock returns.
4.

Table B-4
Sample Statistics for Monthly Returns on the Dow-Jones
Industrials 2002-2007
Company
Name
Microsoft
Coca-Cola
DuPont
ExxonMobil
General Electric
IBM
Chevron
Apple
United
Technologies
Procter &
Gamble
Caterpillar
Boeing
Pfizer
Johnson &
Johnson
3M
Merck
Walt Disney
McDonald's
JPMorgan Chase
Wal-Mart
Nike
American
Express
Intel
Travelers
Verizon
The Home
Depot
Cisco Systems
Goldman Sachs
UnitedHealth
Group
Averages

Smallest
Return
-0.1335
-0.1311
-0.1068
-0.1165
-0.1765
-0.2265
-0.1525
-0.2395

Largest
Return
0.2495
0.1280
0.1436
0.2322
0.1549
0.3538
0.1503
0.3523

Standard
Deviation
0.0679
0.0473
0.0559
0.0534
0.0532
0.0778
0.0544
0.1106

Studentized
Range
5.6437
5.4753
4.4814*
6.5322
6.2235
7.4563
5.5669
5.3493

-0.1419

0.1086

0.0461

5.4331

-0.0680
-0.1471
-0.1283
-0.1294

0.1014
0.2215
0.1503
0.1074

0.0354
0.0720
0.0682
0.0549

4.7874*
5.1195
4.0861*
4.3094*

-0.1482
-0.1284
-0.2577
-0.1750
-0.2567
-0.2807
-0.1060
-0.1240

0.1033
0.1543
0.1866
0.1868
0.1826
0.2522
0.1060
0.1296

0.0400
0.0551
0.0759
0.0641
0.0692
0.0810
0.0490
0.0520

6.2821
5.1353
5.8516
5.6449
6.3508
6.5801
4.3293*
4.8738*

-0.1456
-0.3385
-0.1981
-0.1685

0.1690
0.2455
0.1421
0.3901

0.0542
0.1035
0.0596
0.0743

5.8055
5.6451
5.7093
7.5180

-0.2059
-0.2793
-0.1458

0.1639
0.3345
0.2314

0.0731
0.0974
0.0718

5.0581
6.3011
5.2572

-0.1162
-0.1715

0.1490
0.1924

0.0549
0.0646

4.8327
5.5738

(*statistic shows these companies follow a normal distribution at 10% confidence)

Table B-4 shows the smallest return, largest return, standard deviation
and studentized range of the Dow-Jones Industrials returns from 2002 to

2007. Some of the stocks have a fairly lower studentized range than others.
Some stocks have studentized range greater than 7, while some stocks have
ranges lower than 5. Because the sample size was 252 observations, a
studentized range of less than 4.9 we can conclude with 10% confidence that
the monthly returns follow a normal distribution. Since the average
studentized range is greater than 4.9, we cannot conclude with confidence
that monthly returns follow a normal distribution.
5.
Table B-5

Table B-5 measures the probability frequencies from table B-1 & table
B-3 to the normal probability. As you can see, the daily probabilities are
significantly off within two standard deviations, and even slightly in the outer
tails. However, the monthly probabilities are much closer to the normal
probabilities. However, they do not follow the normal probability uniformly,
so we cannot confidently conclude that monthly returns follow a normal
distribution.
6.
Table B-6

Table B-6 Shows the extreme values similarly to that of table B-4 and
B-2. The value-weighted index has a slight lower studentized range than the
equal weighted index. Meaning that the value-weighted index may follow a
normal distribution more uniformly than the equal weighted distribution.
However, with studentized ranges over 5, we cannot confidently conclude
that the monthly returns for the equal-weighted and value-weighted index
follow a normal distribution. But, we can conclude that the value-weighted

and equal weighted index returns are more normal than monthly stock
returns.
7.
Table B-7
Extreme Values and Studentized Range for Daily Returns-2008
Smallest
Largest
Standard
Studentized
Return
Return
Deviation
Range
Microsoft
-0.08723
0.18605
0.03055
8.94511
Coca-Cola
-0.08669
0.13880
0.02239
10.07293
DuPont
-0.11333
0.11467
0.03002
7.59481
ExxonMobil
-0.13953
0.17191
0.03248
9.58924
General Electric
-0.12789
0.13613
0.03494
7.55711
IBM
-0.05919
0.09566
0.02270
6.82093
Chevron
-0.12489
0.20854
0.03490
9.55363
Apple
-0.17920
0.13905
0.03667
8.67969
United
Technologies
-0.07003
0.13647
0.02757
7.49045
Procter & Gamble
-0.07897
0.10214
0.01931
9.37846
Caterpillar
-0.11434
0.14723
0.03196
8.18471
Boeing
-0.07730
0.15463
0.03020
7.67941
Pfizer
-0.08523
0.10172
0.02369
7.89261
Johnson & Johnson
-0.07665
0.12229
0.01871
10.63087
3M
-0.07900
0.09878
0.02241
7.93192
Merck
-0.14738
0.12162
0.03125
8.60790
Walt Disney
-0.09725
0.15972
0.03107
8.27110
McDonald's
-0.07979
0.09390
0.02149
8.08226
JPMorgan Chase
-0.17879
0.21391
0.05311
7.39401
Wal-Mart
-0.08064
0.11073
0.02113
9.05692
Nike
-0.11835
0.12610
0.03121
7.83245
American Express
-0.17595
0.17927
0.04576
7.76257
Intel
-0.12384
0.11850
0.03331
7.27475
Travelers
-0.18182
0.25556
0.04247
10.29752
Verizon
-0.08069
0.14632
0.02744
8.27187
The Home Depot
-0.08222
0.14067
0.03317
6.72006
Cisco Systems
-0.10626
0.13797
0.03077
7.93666
Goldman Sachs
-0.16749
0.26468
0.05000
8.64347
Visa
-0.13644
0.13946
0.03857
7.15365
UnitedHealth
Group
-0.18636
0.34755
0.04521
11.81078
Value-Weighted
Market
-0.08976
0.11490
0.02532
8.08165
Equal-Weighted
-0.07824
0.10742
0.02200
8.43763

Market
Averages

-0.11283

0.15101

0.03131

8.42616

The stock market was significantly affected during the 2008 financial
crisis. Table B-7 maps out the affects the financial crisis had on the DowJones Industrials, value-weighted index, and equal weighted index. During
2008, the returns on all three of these criteria did not follow a normal
distribution. Every Dow-Jones Industrial had a studentized range greater than
7, while some had a studentized range greater than 10. Even the valueweighted index and equal weighted index had studentized ranges greater
than 8. Thus, we can conclude that the 2008 financial crisis had a big impact
on how normally distributed monthly returns were.
8.
Table B-8
Daily & Monthly Skewness and Kurtosis 2002-2007
Microsoft
Coca-Cola
DuPont
ExxonMobil
General Electric
IBM
Chevron
Apple
United
Technologies
Procter &
Gamble
Caterpillar
Boeing
Pfizer
Johnson &
Johnson
3M
Merck
Walt Disney
McDonald's
JPMorgan Chase
Wal-Mart
Nike

Daily
Skewness
0.17808
-0.66670
0.32948
-0.20437
0.36467
0.22110
-0.34021
0.26163

Daily
Kurtosis
5.79039
8.25906
3.98379
3.36809
5.46714
8.00693
1.29349
2.99850

Monthly
Skewness
1.01682
1.15937
-0.09637
0.63886
0.11175
0.14373
0.80151
-0.15815

Monthly
Kurtosis
6.37050
8.26005
3.17378
6.73691
3.22983
1.47079
7.63156
2.78714

0.28077

3.84364

0.84520

4.59427

-0.08285
-0.26753
0.08620
-0.42679

3.94713
5.08465
1.78858
6.63682

0.25024
0.36676
0.72095
0.24099

5.09597
3.40292
4.02684
3.08364

-1.22404
-0.31936
-2.39380
0.47427
-0.05602
0.37647
0.28631
0.48454

23.47364
6.50125
42.89178
5.33273
6.43998
12.25186
2.61929
3.56212

1.20293
0.49230
-0.39589
0.68901
0.21608
0.39369
0.56777
0.41737

10.31985
3.18234
3.69376
5.01485
2.45832
2.32537
4.84182
3.29009

American
Express
Intel
Travelers
Verizon
The Home
Depot
Cisco Systems
Goldman Sachs
UnitedHealth
Group
Average

0.31541
-0.41325
0.52982
0.08226

4.31492
6.92585
5.82393
5.49127

0.06815
0.08136
0.93760
0.78201

2.24329
1.70381
8.10667
4.03435

-0.25789
0.72558
0.17151

7.04004
11.10427
1.78273

0.70189
0.41544
1.21867

1.67802
2.91692
6.89758

-0.36841
-0.06390

3.34858
7.21974

0.35928
0.48929

1.79514
4.28850

Table B-8 shows the daily and monthly skewness, as well as the daily
and monthly kurtosis of the Dow-Jones Industrials. Under daily returns, there
are 13 companies that show a negative skewness. Under monthly returns,
there are 26 companies that show a positive skewness. All companies,
whether looking at daily kurtosis or monthly kurtosis are leptokurtic. Under
these findings, we can assume that daily or monthly returns do not follow a
normal distribution.