Here are two graphs, one the closing price of IBM stock from 1959 to 1996, the other is Brownian motion. Can you tell which is which? | ||
Here are the corresponding successive differences: left and right. Now can you tell which is which? | ||
The first difference plot reveals both long tails and dependence, while the second shows neither tendency. | ||
The second is Brownian motion, the first is real data. | ||
The difference plot shows these features clearly, while the plot of closing prices is not so easy to interpret. | ||
This is one of the strengths of plotting differences. |
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