Secret Sauce Review Flashcards
Standard Error of Sample Mean eqn & explain
STDV/ SQR root of n
Essentially the standard deviation of the means of the sample
Confidence Interval (Simple) explanation
mean value plus/ minus the corresponding Z score times the standard error
Shortfall Risk is the risk that
a portfolios return will be below the targer return
SFR states that
a portfolio should minimize the risk of the return underpreforming
Continuously compounded Returns (CCR) eqn
Ln(1 +HPR) = Ln(end value/beg. value)
Data mining bias
when research is based off other research, instead of testable economic theory
Survivorship Bias
- Most databases only include firms that are still in existance ie survived
- Most Common Bias
When to use a two tailed test?
to se if the parameter is different from a specified value
When to use a one tailed test?
to see if something is ABOVE or BELOW a specified value
Most Common test statistics
t-statistic and z-statistic
Type I error
False rejection of the null hypothesis
Type II error
Failure to reject the null when it is actually false
What is the Significant Level?
the probability of making a Type I error
Change in Polarity Principal
support levels that bave been broken become resistance levels & vice versa
Moving Line Averages
- arithmetic mean of the last X days of closing prices
- Used to smooth fluctuation in a price chart
Bollinger Bands
drawn with a given number of STDVs above and below a moving average line.
Prices are believed to fall when the reach the upper band.
A negitive coefficient on income in a demand function denotes
that the good is inferior
English Auction
ascending price auction, highest bid wins the item
Vickrey Auction
highest bid wins the item, but pays the next highest bid amount
Dutch Auction
Price is reduced until a bidder is willing to pay the price
Substitution effect is
always positive
Giffen Good
decrease in price leads to a decrease in Qd
-Supported by theory
Veblen Good
an increase in price causes an increase in value to some consumers
Explicit Costs
accounting expenses that are deducted on the income statement
Implicit Costs
used in calculating economic profit, includes opportunity costs
Price Searcher
firm facing a downward sloping demand curve
Marginal cost Equation
change in total cost / change in output
Breakeven Point
Price where ATC and MC intersect
Shutdown point
Price where AVC and MC intersect
Minimum effieient scale
lowest point on a LRATC
Input levels and profit maxing
MPn/ Pn, meaning that additional output per dollar spent to employ an additional unit of each input must be the same
Marginal Revenue Product
marginal product * marginal revenue from selling the additional output unit
HHI
The sum of all the squares of market shares
Under PC, where is a firms long run supply curve
MC curve above the ATC curve
GDP Equation
GDP= C + I + G + (X - M)
How to finance a fiscal deficit
some combination of a trade deficit or an excess of private savings
Aggergate Demand Curve composition
AD curve is made up of IS &LM intersections at different price levels
LRAS cure
perfectly inelastic (vertical)
Recessionary Gap
When AD falls below the LRAS
Inflationary Gap
When AD increases beyond the LRAS
4 business cycles
Expansion
Peak
Contraction (recession)
Trough
Frictional Unemployment
comes from the time lag to match employees with employers
Structural Unemployment
caused by long run changes that eliminate certain jobs
Cyclical Unemployment
Caused by general changes in economic activity levels.
Participation ratio
the percentage of working age population who are employed or seeking employment
Inflation rate
percentage in crease in price level, typically compared to the prior year
Price Index
measures the total cost of a specific basket of goods relative to its cost in a prior period
Core Inflation
calculated excluding food and energy prices due to their volitility
