NASDAQ Stock Market's Major Milestone - Assignment Example

From the data, the changes in the composite index in the 12 months of trading have been summarized yearly from the different securities traded. The difference between the opening trading composite index and the closing composite index gives the gain or loss during the trading financial year. From this, the percentage amount of gain or loss is derived. A stock market index is very important in many ways as it is used to gauge the economic conditions of a given economy. A worse composite index could mean that the economy is going through a recession while a pleasing composite index shows that the economy is doing well. This is because the index comprises all listed companies and their returns in the securities exchange mainly to show the potential investments from both local and foreign investors in the country.

From the data, the year 2009 was the best performing year in the ten-year period with a percentage return of 43.89%, followed by the year 2013 with a percentage return of 38.32%. The great investment returns in the stock market could have resulted from better economic conditions in America’s economy and wide interest from both external and internal investors in the NASDAQ securities exchange. More incentives offered in investing in the stock exchange like the elimination of capital gains tax and investors getting double digits in the stock market could also be a driver in having more returns in the stock market.

The worst performing year from the data was in the year 2008 with a negative loss in the NASDAQ stock exchange of -40.54%. Worse economic conditions in the United States followed by the general elections in the year can be a big explanation for the stock market performance. This could have resulted from unpredictable conditions that could have resulted after the general elections and the investors would have opted to withdraw their investments to avoid making losses in the future. The change of the government saw a significant rise in the stock market return in the year 2009 meaning that the government had a well-structured economic recovery system in country.

Average return

10.20%

Standard deviation

21.92%

From the data above, the average return in the NASDAQ stock market was a rate of 10.20% in the ten-year period under consideration. Looking at the economic conditions and cycles that America has undergone in the decade, this would be a fair result for the stock market. The high rise of other economies like the European Union and the great rise of China in the recent decade has forced America to adjust to too many changes to adapt to the great competition. Although on average only four years managed to go above the 10.20% average return in the 10 years, this means that on average most of the years underperformed in the stock index.

The standard deviation is used as a means of measuring how much risk the stock market is exposed to. The risk is measured by deriving by how much in each of the ten years the return deviates from the average return of 10.20%. From calculations, the standard deviation is equal to 21.92% which is a very high rate meaning that a lot of risks is involved in investing in the NASDAQ securities exchange.