Concepts (CH 3): Statistical Concepts and Market Returns Flashcards
refer to data and to the methods used to analyze data
statistics
what are the two statistical methods
descriptive & inferential
used to summarize the important characteristics of a large data set
descriptive
procedures used to make forecasts, estimates, or judgements about a large set of data on the basis of the statistical characteristics of a smaller set (a sample)
inferential
set of all possible members of a stated group
population
subset of the population of interest
sample
What are the types of measurement scales
nominal scales, ordinary scales, interval scales, ratio scales
observations are classified/ counted in no particular order (least information)
nominal scales
- higher level of measurement than nominal scales
- every observation is assigned to one of several categories
- categories are ordered with respect to a specified characteristic
ordinary scales
- provides relative ranking, like ordinary scales
- differences between scale values are equal
interval scales
What is the weakness of the interval scale?
measurement of zero (0) does not necessarily indicate the total absence of what is being measures
- most refined level of measurement
- provides ranking and equal differences
between scale values - have a true zero point as origin
ratio scales
measure used to describe a characteristic of a population
PARAMETER
measures characteristic of a sample
SIMPLE STATISTIC
- tabular presentation of statistical data that aids the analysis of large data sets
- summarizes statistical data by assigning
it to specified groups, or intervals
- data employes with a frequency distribution may be measured using any
type of measuryment scale
FREQUENCY DISTRIBUTION
in a frequency distribution, it is the interval with the greatest frequency
modal interval
- useful way to present data
- percentage of total observations falling within each interval
RELATIVE FREQUENCY
sum of the absolute or relative
frequency starting at the lower interval and progressing through the highest
CUMULATIVE ABSOLUTE FREQUENCY/CUMULATIVE RELATIVE FREQUENCY
- graphical presentation of the absolute
frequency distribution - bar chart of continuous data
- allows us to see where most
observations are concentrated
HISTOGRAM/FREQUENCY POLYGON
- the midpoint of each interval is plotted on the horizontal axis and the absolute frequency for that interval is plotted on the vertical axis
- points are connected with a straight line
frequency polygon
- identify the center, or average of a data set
- can be used to represent the typical or expected value in the data set
measures of central tendency
all observed values in the population are summed and divided by the number of observations in the population
population mean
sumofallthevaluesinasampleofa population divided by the number of observations in the sampler
sample mean
- most widely used measure of central tendency
- only measure of central tendency for which the sum of the deviations from the mean is zero (0)
ARITHMETHIC MEAN
recognizes that different observations may have a disproportionate influence on the mean
WEIGHTED MEAN
value that occurs most frequently in a data set
MODE
- when a distribution has one value that appears most frequently
unimodal
when a set of data has two or three values that occur most frequently
bimodal or trimodal
is often used when calculating investment returns over multiple periods or when measuring compound growth rates
GEOMETRIC MEAN
- used for certain computations
- such as the average cost of shares
purchased over time
HARMONIC MEAN
uncertain quantity/number
random variable
an observed value of a random variable
outcome
single outcome or a set of outcomes
event
events that cannot both happen at the same time
mutually exclusive events
those that include all possible outcomes
exhaustive events
2 defining properties of probability
- probability of occurrence of any event
is between 0 and 1 - if a set of events, E1, E2,… En, is
mutually exclusive and exhaustive, the probability of those events sum to 1
established by analyzing past data
empirical probability
determined using a formal reasoning and inspection process
priori probability
- least formal method of developing probabilities
- involves the use of personal judgment
subjective probability
stating the odds that an event will or will not occur is an alternative way of expressing probabilities
ODDS FOR and AGAINST the
EVENT
- marginal probability
- probability of an event regardless of the
past or future occurrence of other events
unconditional probability
- occurrence of one event affects the other probability of the occurrence of another event
conditional probability
- the probability that they will both occur
- can be calculated from the conditional
probability that A will occur given B occurs (conditional) and the probability that B will occur (unconditional)
MULTIPLICATION RULE OF PROBABILITY
- used to determine the probability that at least one of the 2 events will occur
- either A or B will occur
addition rule
- refer to events for which the occurrence of one does not influence the occurrence of the others
- can be expressed in terms of conditional probabilities
INDEPENDENT EVENTS
- the occurrence of event A affects the probability of the occurrence of event B
DEPENDENT EVENTS
