Wrong Answers Flashcards
Stochastic oscillator
Stochastic oscillator measures the relationship between close, high, and low prices
Candlestick chart
When the body of the candle is:
- –filled/shaded, it indicates that the opening price is higher than the closing price.
- –Clear, it indicates that the opening price is less than the closing price
Lagging sectors
The sectors that are linked with commodity and technology stocks are referee to as “lagging sectors.”
Relative strength index
A subtype of momentum oscillators
Hypothesis Testing Errors
- -Failing to reject H0 when it is actually true is not an error, it is correct
- -Rejecting H0 when it’s true is Type 1
- -Accepting when it’s not true is Type-II error
The smaller the significance level, the smaller the probability of making
A Type 1 error, and the greater the probability of making a type-II error
Chi-square
In tests concerning variance of single, normally distributed population, the test statistic most likely used is chi-square with n-1 degree of freedom where n is sample size
Sample Selection Bias
—Most common form is survivorship bias
—Time-period bias occurs when data gathered is for period that is either too short or too long
—Look-ahead bias occurs when a relationship is tested by using a sample data that was not available on the test date.
Central Limit Theorem
According to the central limit theorem the distribution of sample mean has following properties, as long as sample mean is large.
- -Distribution of sample mean will be approximately normal
- -Distribution mean will be equal to population mean from which samples are drawn
- -Variance of distribution of sample mean will be equal to variance of population mean divided by sample siE
Panel Data
Used for single characteristic,ultisols observation units at different times.
Efficiency estimator.
1) An unbiased estimator with the smallest variance is referred to as an efficient estimator.
2) Efficiency of an estimator is measured by it’s variance.
As degree of confidence increases:
the confidence interval widens & precision in estimating the population parameter lowers.
Z-alternative
- -Large sample and unknown population variance
- -Confidence interval calculated as average +sd/sqrt n
Self-selection bias
occurs when hedge funds with poor track records do not voluntarily disclose
Data mining bias
–Detected by conducting out-of-sample tests of the proposed variable.
–When the variable is not statistically significant in out-of-sample tests, it indicates that the variable suffers from data mining bias.
Stratified random sampling
Used in pure bond indexing or in full replication approach in which an investor wants to fully replicate the index by owning all the bonds in the index in proportion to their market value.
Continuous uniform probability distribution
Defined over a range, which sets the parameters for the distribution
Bernoulli variable
- -A binomial variable, which is random
- -number of trials is 1
Probability less than or equal to
Given value-Lower bound/
upper value -lower bound
Assumptions of binomial distribution
(1) Probability of success is constant for all trials
(2) The trials are independent.
Lognormal distribution
- -Longnormal random variables cannot be negative unlike normal distribution
- -Like normal distribution, lognormal distribution is complete described by two parameters mean and variance
- -Lognormal distribution is bounded below by zero and skews to the right
Roy’s Safefy-first ratio
Expected return-threshold/sd
Money market yield
360 x BDY/360-(t x BDY)
Money market yield from Market prices
BD=(Face value- Market price)/Face value
x
360
/
days to maturity
Money-weighted rate of return
The internal rate of return taking account of all cash flows
Covariance
Cov (Rx,Ry) = CorrelationCoe x sq rt of Rx x sq rt of Ry
Expected values
–Conditional probabilities are used in the calculation of expected values rather than unconditional probabilities
–The joint probability of a mutually exclusive event is always 0
Conditional probability Relation
The conditional probability of an event may be greater than, equal to, or less than the unconditional probability.
Conditional Probability
Prob (A |B) =Prob (B|A) x Prob (A)/Prob (B)
Probability of at least one:
Addition Rule:
P (A or B) = P(A) + P(B) - P(AB)
Covariance of a random variable with itself
Covariance of a random variable with itself is it’s own variance
Bayes Formula
(1) Used when A|B and B|A are mutually exclusive
2) P(A|B)/P(B) x P(A
Kurtosis and Skew
(1) Leptokurtuc reflects more frequent extremely large deviation from mean than normal distribution
(2) Positive skewed or right skewed distribution reflects frequent small losses and few extreme gains
Chebyshev’s inequality
at least 75% of observations must lie within 2 standard deviations from the mean
(1-1/k^2)
Used even is non
normal 68, 95, 99
Inter quartile range
- Focuses on middle rather than extreme values
- IQR difference between 3rd and 1st Quartiles
- Represents length of interval containing middle 50% of data.
Negatively skewed or left skewed
- Long tail on left
- Skewness < 0
- Mean < Median < Mode
- Frequent small gains & few extreme losses
MAD / Sample Variance
(1) Mean absolute deviation-the greater the MAD, the riskier the asset
(2) Sample variance is an unbiased estimator of variance
Coefficient of variation
Measures the amount of risk per unit of mean value
CV = S/Avg X
T-Test
sq rt n (1/x) sd (1/x) difference in means
(2) As sample size increased. difference between rejection points for both t-test and z-test decreases
Inferior good
Law of demand is most likely violates when substitution effect is less than income effect.
Indifference curves
- Consumers prefer higher
- Always downward sloping
- Do not intersect
4 Convex
Gif fen good
All given goods are inferior,, but not all inferior good are hidden.
Speculative demand of money increases when:
- –Interest rates decrease
- –expected return on other financial instruments decrease
- –Perceives risk in other financial instruments increase
Neo Keynesian
Assumes downward “sticky” prices and wages
Participation/Activity Ratio
Ratio of labor force to total population of working age
Unemployed
- -Actively searched for work in last 4 weeks
- -Laid off and waiting to be recalled
- -Starts new job in 30 days
Velocity of money
Velocity =Nominal GDP/Money Supply
- -When velocity falls due to decrease in nominal GDP, may indicate potential for cyclical upswing
- -When velocity falls due to an increase in money supply, it may indicate potential for inflationary pressure
- -Wgeb velocity rises due to decrease in money supply, it may indicate shortage of money in the economy or disinflation or deflation.
Aggregate Demand
1) Consumption
2) Investment
3) Government spending
4) Net exports
Actual GDP > Potential GDP
- -Growing inflationary pressures and restrictive monetary policy would be suitable
- -It is preferred to reduce investment in fixed income securities
Increase in government spending
Increases Aggregate Demand
Increases price of equities and outs upward pressure on interests rates
Money Supply time average number of times per year used equals
nominal GDP
First price sealed bid auction
Subject to sumner’s curse
Oligopoly
Similar or differentiated products
Perfect competition
All firms produce differentiated products
- -total quantity supplied and demanded is mainly determined by price while non-price factors are not important
- -Firms fact infinite elastic deman curve
- -Mr= Ar=P=D at any level
- -When TR<TVC, the firm operating under perfect competition should:
- —shut down production in Sr and exit in long run
Short run profit maximization
- -Firms operate under fixed scale of production
- -Firms can neither enter not exit the industry
Marginal revenue
Change in TR/Change in Quantity sold
Marginal product
Marginal cost is at it’s minimum level, average product is increasing and avc is decreasing
Marginal Product of Capital
Increase in the output from using one additional unit of capital keeping labor constant
Rationalization/Attitude
Risk Factor associated with strained relationship between management and auditors.
Total invested capital
Sum of market value of c’mon equity, book value of preferred equity and face value of debt
