Statistical Concepts & Market Returns

Question 1

arithmetic means

Answer 1

sum of the observation values divided by the number of observations.
most widely used measure of central tendency
All interval and ratio data sets have an arithmetic mean.
All data values are considered and included in the arithmetic mean computation.
A data set has only one arithmetic mean (i.e., the arithmetic mean is unique).
The sum of the deviations of each observation in the data set from the mean is always zero.

Question 2

Mode

Answer 2

Value appears most frequently

Question 3

Geometric Mean

Answer 3

often used when calculating investment returns over multiple periods or when measuring compound growth rates
always less than or equal to the arithmetic mean,
difference increases as the dispersion of the observations increases
nly time the arithmetic and geometric means are equal is when there is no variability in the observations

Question 4

Harmonic Mean

Answer 4

Useful in calculating average cost per share purchased over time.

Question 5

Quartiles

Answer 5

the distribution is divided into quarters

Question 6

Quintile

Answer 6

the distribution is divided into fifths.

Question 7

Decile

Answer 7

the distribution is divided into tenths.

Question 8

Percentile

Answer 8

the distribution is divided into hundredths (percents)

Question 9

Dispersion

Answer 9

variability around the central tendency

Question 10

Central Tendency & Dispersion

Answer 10

Central Tendency is measure of reward and Dispersion is a measure of risk.

Question 11

Range

Answer 11

Distance between the largest and smallest value in a dataset.

Question 12

mean absolute deviation (MAD)

Answer 12

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

uses the absolute values of each deviation from the mean because the sum of the actual deviations from the arithmetic mean is zero

Question 13

population variance

Answer 13

average of the squared deviations from the mean

Question 14

biased estimator

Answer 14

Using n − 1 instead of n in the denominator.
If you just use n you will systematically underestimate the population parameter, σ2, particularly for small sample sizes

Question 15

Examples of Central Tendancy

Answer 15

Arithmatic Mean
Geometric Mean
Weighted Mean
Median
Mode

Question 16

Examples of Dispersion

Answer 16

Range
Variance
Mean Absolute Deviation