Frequency distributions

A representation either in a graphical or tabular format summarizing the data into a relatively small number of intervals. It shows the absolute number of observations in each interval.

The set of intervals must be mutually exclusive (non-overlapping) and exhaustive (contain all of the possible observations.The frequency with which observations fall into each interval is used to construct the frequency distribution for a random variable’s outcomes.

Steps to construct frequency distribution
1 Calculate holding period return: (P_t-P_t-1+D_t)/ P_t-1
2 Define intervals
3 Tally observation
4 Count observation
5 Plot

Relative Frequency
Absolute frequency divided by the total number of observations to show the percentage of total observations in each interval.

Cumulative relative frequency
Relative frequencies are added together to show the percentage of observations that fall at or below a certain point.

Graphic presentation
Histogram
A obsolute frequency distribution by using bar chart.

Frequency polygon
A frequency distributuion by joining the midpoint of each interval in x-axis with obsolute frequency in y-axis. It is a line graphic.