Table Of ContentSpringer Texts in Business and Economics
Clifford S. Ang
Analyzing
Financial Data and
Implementing
Financial Models
Using R
Second Edition
Springer Texts in Business and Economics
Moreinformationaboutthisseriesathttp://www.springer.com/series/10099
Clifford S. Ang
Analyzing Financial Data
and Implementing Financial
Models Using R
Second Edition
CliffordS.Ang
CompassLexecon
Oakland,CA,USA
ISSN2192-4333 ISSN2192-4341 (electronic)
SpringerTextsinBusinessandEconomics
ISBN978-3-030-64154-2 ISBN978-3-030-64155-9 (eBook)
https://doi.org/10.1007/978-3-030-64155-9
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Tomyfamilyandfriends.
Withspecialgratitudetomywifeand
childrenwithout whomnothing inthis
worldmatters.
And,tomyparentsandbrother,
allofwhomhavebeenextremelysupportive
ofallmyendeavors.
Preface
Thefirsteditionofthisbookwaswrittenin2015.Tosaymanythingshavechanged
sincethenisanunderstatement.AsIamfinalizingthesecondedition,wearestillin
themidstoftheCOVID-19pandemicandareexperiencingwhatsomebelievewill
bethenewnormal.Thiseventisareminderthattheonlyconstantthingischange
andwehavetolearntoadapt.
This second edition is one of adaptation as well. I took into consideration
commentsIreceivedfromthosewhousedmybooktohopefullymakethesecond
edition more helpful. The biggest visual change is that charts are now in color.
Chapters 1–7 and 9–10 are chapters that were also in the first edition, but that is
wheremostofthesimilaritiesend.Thecontentsinthesechaptershavebeenalmost
completelyre-written.Theexamplesareallnew.Inowuse5yearsinsteadof3years
ofdataformanyexamples.Someofthetechniqueshavealsobeenrevised.Ihave
added some new topics as well. For example, I have added examples of two-axis
charting in Chap.1, winsorization and truncation in Chap.2, time- and money-
weighted rates of return in Chap.3, testing for heteroskedasticity, non-normality,
andautocorrelationaswellasselectingbestregressorsinfactormodelsinChap.5,
shortratemodelsinChap.9,andAmericanoptionpricinginChap.10.
There are also three new chapters in the second edition. Chapter 8 discusses
equities. In that chapter, I show how to scrape financial statement data from SEC
filings,analyzeprojections,performrelativevaluationusingregressionanalysis,and
identifyshocksinstockreturns.Chapter11isonsimulation,whereIdemonstrate
how to simulate stock prices and how to use simulations in Value-at-Risk, Monte
Carlooptionspricing,andexoticoptionvaluation.Ithenexploretradingstrategies
inChap.12andshowthebasicsofbuildingatradingstrategyandmachinelearning
techniques, like k-nearest neighbor, regression with k-fold cross validation, and
artificialneuralnetworks.
Not all things have changed though, as I am staying true to the promise of the
first edition. I still handhold you through every step of the process. We start with
obtaining the raw data, importing the data, getting the data into shape, and then
performing our analysis. I still show intermediate output to make sure you do not
get lost along the way. My intended audience is still anyone who wants to learn
vii
viii Preface
financialmodelinganddataanalysisinR.Asidefromyourinvestmentinthisbook,
RisfreeandIstillusedatathatisfreelyaccessible.Priorbackgroundinfinanceis
helpful,butnotnecessary.Ialsotrytoexplaininlayperson’stermsmostofthemath
usedinthisbook.
Whatdoesthisallmean?Forstudents,thismeansyoucanlearnhowtousethe
toolsandtechniquesyoulearnintheclassroomusingrealworlddatawithrealworld
challenges. For professors, this means you can concentrate on teaching the theory
andconceptsandletthisbookhandholdyourstudentsthroughtheimplementation
ofthevariousmodels.Forpractitioners,thismeansyoudonotneedtogotoaformal
class to learn how to perform data analysis and implement financial models in an
organizedfashion.
I hope you find this book helpful and insightful. To contact me or find
supplementalmaterialsforthissecondedition,pleasevisitwww.cliffordang.com.
Oakland,CA,USA CliffAng
September2020
Acknowledgments
Thesecondeditionofthisbookwouldnothavebeenpossiblewithouttheassistance
andsupportofmanypeople.
Iamthankfultomywifeandkidsforonceagainputtingupwithmethroughout
theentireprocess.
I would like to thank the wonderful team at Springer Nature. First, my editor,
Nitza Jones-Sepulveda, for giving me the opportunity to write this second edition
and to work with her again. I also owe a debt of gratitude to her predecessor,
Nicholas Philipson, who was my editor for the first edition. I would also like to
thankFaithSu,KirthikaSelvaraju,andotherswhoprovidedassistancethroughout
theprocess.
I am grateful to the following for helping improve this book by providing their
input, comments, feedback, and corrections to drafts of the second edition and to
the first edition: Dexter Agcaoili, Dan Benton, Elijah Brewer, Jian Cai, Michael
Crain,AdamFleck,MarcusHennig,Karl-WernerHansmann,WeiHu,Chien-Ling
Lo,MerrittLyon,AndriavanderMerwe,VinceWarther,andMarieWinters.
ThisbookalsowouldnothavebeenpossibleifIwerenotgivenpermissiontouse
third-partydata.IwouldespeciallyliketothankNassrinBernsatCSI,whoassisted
me in obtaining permission for both editions of my book. Data on Yahoo Finance
isfromCSI,andIusethatdataextensivelyinthisbook.Iwouldalsoliketothank
ProfessorKenFrenchatDartmouth,theChicagoBoardofOptionsExchange,S&P
DowJones,andMoody’sAnalyticsforgrantingmepermissiontousetheirdata.
IamsureIhaveforgottentomentionmanyotherpeoplethatinsomewayhave
contributedtothisbook.Forthat,mysincerestapologies.
ix
Contents
1 Prices......................................................................... 1
1.1 PriceVersusValue................................................... 2
1.2 ImportingPriceDatafromYahooFinance......................... 4
1.3 CheckingtheData................................................... 10
1.3.1 ChecktheStartandEndData ............................. 11
1.3.2 PlottingtheData ........................................... 12
1.3.3 CheckingtheDimension................................... 13
1.3.4 OutputtingSummaryStatistics............................ 14
1.3.5 CheckingtheTickerSymbol .............................. 15
1.4 BasicDataManipulationTechniques............................... 16
1.4.1 KeepingandDeletingOneRow........................... 17
1.4.2 KeepingFirstandLastRows.............................. 17
1.4.3 KeepingContiguousRows ................................ 18
1.4.4 KeepingOneColumn...................................... 20
1.4.5 DeletingOneColumn...................................... 21
1.4.6 KeepingNon-ContiguousColumns....................... 21
1.4.7 KeepingContiguousColumns............................. 21
1.4.8 KeepingContiguousandNon-ContiguousColumns..... 22
1.4.9 KeepingRowsandColumns .............................. 23
1.4.10 SubsettingTimeSeriesDataUsingDates ................ 23
1.4.11 ConvertingtoWeeklyPrices .............................. 26
1.4.12 ConvertingtoMonthlyPrices ............................. 27
1.5 ComparingCapitalGainsBetweenSecurities ..................... 27
1.5.1 Alternative1—Usingxts-StyleChart..................... 33
1.5.2 Alternative2—PlottingFourMini-Charts................ 35
1.5.3 Alternative3—UsingggplottoPlotFour
Mini-Charts................................................. 37
1.6 SimpleandExponentialMovingAverages......................... 40
1.7 Volume-WeightedAveragePrice ................................... 43
1.8 PlottingaCandlestickChart ........................................ 45
1.9 2-AxisPriceandVolumeChart..................................... 48
xi
