Financial market are the system in which a large number of people i.e. traders interact with each other and react to external information in order to determine the best price for a given items or goods.
The good might be as different as animals, valuable metals, share, piece of property, currency, bonds ( Insurance policy ) and derivative products etc issued on underlying financial market as a good,
In other words, a financial market is a market in which people trade their goods at low transition costs that reflects supply and demand. Some market are localized in specific places (for eg; Kathmandu, Pokhara, etc), whereas other such as foreign exchange market are delocalized and accessible (available) all over the world.
Financial data are the fundamental building blocks for business analysis. It consists of pieces or sets of information related to the financial market such pieces of information or data can be used to analyze business performance and determine the tactic and strategies.
People and organization outside the business will use financial data to judge its credit of worthiness and decide whether to invest in business or not.
Analysis of Financial Data
In finance a large quantity of financial data is currently being recorded and stored in computer. The nature and format of these’ data depend upon the financial asset (resources) in question and on the particular institution collecting the data. Statistical analysis of such data have been performed since the recording activity started. Statistical analysis of financial data are essential and required for following reason:
-To understand the fundamental reason of market dynamics
-To investing for applied reason that related to the problem of option pricing and portfolio (investment management.
– To minimize the future risk on investment as well as in financial selector.
Scales in Financial Data
To measure anything we need a proper scale of measurement and reference point/units. The scales and reference points are taken as basis/standard for evaluation and comparison in measurement
In natural science, such as physics the role of reference unit is considered basic foundation to all fundamental and theoretical work. Efforts are continually made to find the most effective (i.e. , optimal) reference units of a given problem and to improve the accuracy of their determination.
The system of the physical units is continuously improved in order to estimate and hence eliminate even’ the smallest deviation/errors. A branch of physics called Meteorology is mainly devoted to this task.
Unfortunately, in finance opposite situation appears. The scales used are here often given in units (i.e. currencies) that are themselves fluctuating in time and transactions. Since transactions occur at random times with random intensities.
For this reason, great care must be taken in the selection of the most appropriate variable (i.e scale and reference unit) to be studied the financial market For this, we need to take into account and analysis the implicit assumptions associated with each possible choice.
In conclusion, different goods and assets in financial market can be measured quantitatively as like physics with proper choice of scales and reference unit.