What is the probability that a stock will show an increase in its closing price on five consecutive days?

Question

The increase or decrease in the price of a stock between the beginning and the end of a trading day is assumed to be an equally random event. is this a poisson distribution problem? I am having trouble solving it.

Answer 1

It has been a long time since I had to work a problem such as this.  I don't believe it would be a poisson distribution.  That type of distribution defines the probability of a set of events occurring during a given time interval.  I believe the distribution that fits this particular problem is the binomial distribution.  

(p**k)*(1-p)**(n-k) where n = 5 number of days and  k= number of up ticks. p= probability of each up tick ie 0.5

0.03125 * 1 = 0.03125

Answer 2

Hmm. I have never seen this question. I think I would assume symmetric price distribution and continuous price and compute the probability the price change on a given day will be positive (about 1/2). For five successive days, the chances are slightly above 3%.  There are ways of improving this estimate.

Answer 3

Forgetting about the maths common sense would imply that the more bullish the market the greater the probability would be.  

Never did like maths.  Excel Spreadsheets will be the end of us all.  Even though Spreadsheets didn't actually cause the Northern Rock crisis they provided the medium through which the wrong management decisions were made including - Borrowing Short to Lend Long.

Cheers

Roger