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Question 1

Range

Answer 1

The difference between the maximum values and minimum values in a data set

Calc: Range = Max Value - Min Value

Question 2

Mean Absolute Deviation

Answer 2

Calc: Return - Arithmetic Return + … / N

Question 3

Most common measures of dispersion (absolute dispersion: “the amount of variability present without comparison to any reference point or benchmark.”)

Answer 3

Range: Max Value - Min Value INtep: A larger range of return implies more risk

MAD - “The mean absolute deviation uses all of the observations in the sample and is thus superior to the range as a measure of dispersion” Addresses the issue that the SD of the mean always equals 0 (because the -N’s cancel each other out). Disadv. Difficult to manipulate mathematically (variance is better for this). Interp: A hhigher MAD implies more risk

Variance (population)

Standard Deviation (population)

Question 4

Population Variance (must know ev. member of a population aka need knowledge of pop. mean Mu)((parameter of a distribution, risk measure)

Answer 4

“Variance is defined as the average of the squared deviations around the mean.

“the population variance is the arithmetic average of the squared deviations around the mean.”
adv: “variance takes care of the problem of negative deviations from the mean canceling out positive deviations by the operation of squar- ing those deviations”

Measured in squared units - also, it’s the SD^2

Question 5

Standard Deviation (parameter of a distribution, risk measure)

Answer 5

Standard deviation is the positive square root of the variance.”

SD is useful to return variance to original units (since variance is measured in ^2’ed units): Expressed in the same unit of measurement as the observations

Question 6

Sample Variance

Answer 6

The statistic that measures the dispersion in a sample

Question 7

Sample Standard Deviation

Answer 7

calc

Question 8

“The mean absolute deviation will always be less than or equal to the standard deviation because the standard deviation gives more weight to large deviations than to small ones…

Answer 8

(remember, the deviations are squared).”