Malaysia’s primary stock index, FBMKLCI closed at 1,624.970 (as of 5 December 2016). With less than 20 trading days left in the year, what is the probable year end target for FBMKLCI?
A hypothesis test for normality formally tests if the population the sample represents is not normally distributed.
The null hypothesis states that the population is normally distributed, against the alternative hypothesis that it is not normally distributed. When the test p-value is small, you can reject the null hypothesis and conclude the data are not from a population with normal distribution. Read More
We extract the index data points of FBMKLCI from 2 Jan 2016 – 5 Dec 2016 (trading days only) and perform a normality test. With the test p-value is small, the trading data does not appear to be from a normal distribution.
Nevertheless, the above test highlights the following:
- Mean of 1,663.39 with 1 standard deviation of 28.6042
- 1-standard deviation interval range: 1,635 – 1,692
- Highest “bin” of data points is between 1,667.6 – 1,674 (probability:11.35%), followed by 1,623.2 – 1,629.5 (probability: 10.48%)
If an investor believes in reversion to the mean, we may potentially see an upward movement in the index toward the distribution mean of 1,663.39 from the current index point of 1,624.970, or at least fall in the 1-standard deviation interval range of 1,635 – 1,692.
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