Analysis of the Underlying Dynamics in the Stock Market: Stock Price of Southwest Airlines and Its Relationship with Other Stocks in the Market

In this project, we study the underlying dynamics in the stock market. Using data from Yahoo! Finance1 on stock prices from 1998 to 2002, we study the stock prices of Southwest Airlines and its relationship with the stocks of Exxon Mobil Corporation, Microsoft Corporation, and the S&P 500. We then shift our focus to analyze the returns of these four stocks and their relationship with each other. Finally, we predict the stock returns of Southwest Airlines for 2003 and 2011, and compare the prediction errors for both years.

A model is developed using linear regression to predict daily stock returns of Southwest Airline in 2003 and 2011, with ASPE less than 0.032% and 0.026% respectively.