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CFA Self Study > Statistical Concepts & Market Returns > Flashcards

Statistical Concepts & Market Returns Flashcards

Master assigned reading #7

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CFA flashcards
1
Q

Descriptive Statistics

A

Summarizes the characteristics of a data set

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2
Q

Inferential Statistics

A

Used to make a probablistic statement about a population based on a sample

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3
Q

Nominal scale

A

No particular order

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4
Q

Ordinal Scale

A

Catagories can be ordered

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5
Q

Interval Scale

A

Differences in data variables are meaningful, but ratios are not meaninful

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6
Q

Ratio Scale

A

Ratios are meaningful, and zero represents an absence of that characteristic

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7
Q

What is a parameter?

A

Any measurable characteristic of a population

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8
Q

What is a sample statistic?

A

A characteristic of a sample

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9
Q

What is an interval?

A

A range of values

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10
Q

A frequency distribution…

A

groups observations into classes, or intervals

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11
Q

Relative Frequency

A

The percentage of total observations falling within an interval

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12
Q

Cumulative Frequency for an Interval

A

the sum of all relative frequencies for all values less than or equal to that intervals maximum value

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13
Q

Histogram

A

Bar chart that is grouped into a frequency distribution

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14
Q

Frequency Polygon

A
  • Plots the midpoints of each interval on the horizontal axis and the absolute frequency on the vertical axis
  • Then connects the midpoints with straight lines
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15
Q

Advantage of histograms and frequency polygons?

A

They allow us to quickly see where most observations lie

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16
Q

The arithmetic mean is the…

A

average (both population and sample means are arithmetic means)

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17
Q

Geometric mean is used to…

A

Find the compound growth rate

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18
Q

Weighted means does what?

A

Weights each value according to its influence.

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19
Q

Harmonic Mean is used to..

A

find an average purchase price, such as dollars per share for periodic investments

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20
Q

The median is the…

A

midpoint of the data set when data is arranged from largest to smallest

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21
Q

What is the mode?

A

the value that occurs most frequently

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22
Q

Quartile

A

distribution divided into quarters

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23
Q

Quintile

A

distribution divided into fifths

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24
Q

Decile

A

Distribution divided into tenths

25
Q

Percentile

A

Distribution divided into hundreths

26
Q

Range

A

Difference between the largest and smallest value in a data set

27
Q

Exhaustive Events

A

Include ALL possible outcomes

28
Q

Example of an exhaustive event

A

rolling the dice, rolling a number1-6 is exhaustive

29
Q

Empirical Probabibility

A

established by analyzing past data

30
Q

Priori Probability

A

Determined using a formal reasoning and inspection process

31
Q

Unconditional Probability

A

Simply the probablity of an event occuring

32
Q

Conditional Probablility

A
  • The occurrence of one event affects the probability of another event
  • Also called “likelihood”
33
Q

Multiplication Rule of Probability

A

P(AB) = P(A given occurrence of B) * P(B)

34
Q

Addition Rule of Probablility

A

P(Aor B) = P(A) + P(B) - P(AB)

35
Q

Total Probability Rule

A

P(A) = (P(A given occurrance of B1)P(B1)) + (P(A given occurrence of B2) P(B2))…….
-where B1,B2,Bn is a mutually exclusive, exhaustive series of eventsl

36
Q

Joint Probability Equation (Multiplication Rule)

A

P(AB)= P(A given that B) * P(B)

37
Q

Addition rule of probability for Mutually exclusive events

A

P(A or B) = P(A) + P(B)

38
Q

With independent events, “and” indicates__ and “or” indicates _____

A

With independent events, “and” indicates multiplication and “or” indicated addition

39
Q

Independent Events rule equation

A
  • Independent if P(A given B) = P(A)

- If not they are dependent

40
Q

Expected Value

A

Weighted average of all possibe outcomes of a random variable, where weights are the probabilities that the outcomes will occur.

41
Q

Example of a “Population”

A

A cross section of returns of all stocks traded on the NYSE

42
Q

Modal Interval

A

The interval with the greatest frequency in a frequency distribution

43
Q

Measures of central tendency

A

identify the center, or average, of a data set

44
Q

When there are outliers in data, you should use the_____

A

Median, because arithmetic means can be affected by outliers

45
Q

Bimodal

A

A distribution that has two values that occurs most frequently

46
Q

The geometric mean is always _________to the arithmetic mean

A

Geometric mean is always less than or equal to the arithmetic mean

47
Q

“Dollar Cost Averaging”

A

purchasing the samme dollar amount of mutual fund share each month or each week

48
Q

Percentile Calculation

A

Ly= (n+1) * y/100

49
Q

“Dispersion” is defined by

A

variability around the central tendency

50
Q

Mean Absolute Deviation explanation

A

the average of the absolute values of the deviations of individual ovservations from the arithmetic mean

51
Q

Population Variance explanation

A

-the average of the squared deviations from the mean

52
Q

Explan the population standard deviation

A

the population standard deviation is the square root of the population variance

53
Q

How to find the population standard deviation?

A

Essentially you take the square root of the population variance equation

54
Q

What does Covariance measure?

A

the extent to which two random variables tend to be above and below their respective mean

55
Q

What is Correlation?

A

Correlation is the measure of association between two random variables

56
Q

Equation for Expected returns for a 2-asset portfolio

A

E(Rp) = w1E(R1) + w2(E(R2)

57
Q

Correlation Equation

A

CORR(Ri, Rj) = Cov(Ri, Rj) / (STDVi * STDVj)

58
Q

Expected Return Equation

A

P(Xn)Xn + …..

59
Q

Covariance Equation

A

E(x) * (Ri - E(Ri)) * (Rj- E(Rj)) +…..

CFA Self Study (6 decks)

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