Statistical Concepts and Market Returns

Question 1

We explore four properties of return distributions:

• where the returns are centered (______);
• how far returns are dispersed from their center (______);
• whether the distribution of returns is symmetrically shaped or lopsided (______); and
• whether extreme outcomes are likely (______).

Answer 1

central tendency
dispersion
skewness
kurtosis

Question 2

The study of how data can be summarized

effectively to describe the important aspects of large data sets.

Answer 2

Descriptive statistics

Question 3

Making forecasts, estimates, or judgments about a larger group from the smaller group actually observed

Answer 3

Statistical inference

Question 4

Any descriptive measure of a population characteristic is called a _________

Answer 4

parameter

Question 5

A quantity computed from or used to describe a sample

Answer 5

sample statistic (or statistic)

Question 6

All data measurements are taken on one of four major measurement scales: (4)

Answer 6

nominal, ordinal,

interval, or ratio

Question 7

The strongest level of measurement.

They have all the characteristics of interval measurement scales as well as a true zero point as the origin.

Answer 7

Ratio scales

Question 8

tabular display of data summarized into a relatively small number of intervals.

Answer 8

frequency distribution

Question 9

The actual number of observations in a given interval is called the

Answer 9

The absolute frequency,

Question 10

The absolute frequency of each interval divided by the total number of observations

Answer 10

Relative frequency

Question 11

The ________ cumulates (adds up) the relative frequencies as we move from the first to the last interval.

Answer 11

cumulative relative frequency

Question 12

bar chart of data that have been grouped into a frequency distribution.

Answer 12

A histogram

Question 13

Two other graphical tools for displaying data (besides the histogram) are the _____ and the _______.

Answer 13

frequency polygon

cumulative frequency distribution

Question 14

the sum of the observations divided by the number of observations.

Answer 14

The arithmetic mean

Question 15

Most frequently used to average rates of change over time or to compute the growth rate of a variable

Answer 15

Geometric mean

Question 16

How to calculate geometric mean?

Answer 16

Convert to decimal form and add 1. Take the root and substract the result by 1.

Question 17

How to calculate the harmonic mean?

Answer 17

The value obtained by summing the reciprocals of the observations—terms of the form 1/Xi
—then averaging that sum by dividing it by the number
of observations n, and, finally, taking the reciprocal of the average

Question 18

When is the harmonic used in investing?

Answer 18

appropriate when averaging ratios
(“amount per unit”) when the ratios are repeatedly applied to a fixed quantity to yield
a variable number of units. The concept is best explained through an illustration.

Question 19

What is MAD?

Answer 19

mean absolute deviation

Question 20

How do you take the variance?

Answer 20

You compute the average of the squared deviation around the mean

Question 21

What is special with the sample variance and the sample standard deviation?

Answer 21

Soustraite 1 au dénominateur

Question 22

What is the average squared deviation below the mean?

Answer 22

The semivariance. The semideviation is the square root of this number.

Question 23

The average squared deviation below a stated target.

Answer 23

A target semivariance.

Question 24

What does the Chebyshev’s Inequality give?

Answer 24

The inequality gives the proportion of values

within k standard deviations of the mean

Question 25

What is the coefficient of variation?

Answer 25

The ratio of the standard deviation of a set of observations to their mean value

Question 26

How is skewness computed?

Answer 26

The average cubed deviation from the mean standardized by dividing by the standard deviation cubed to make the measure free of
scale.

Question 27

a measure of the combined weight of the tails of a distribution relative
to the rest of the distribution

Answer 27

Kurtosis

Question 28

A distribution that has fatter tails than the normal distribution is called

Answer 28

leptokurtic

Question 29

Distribution that has thinner tails than the normal distribution is called

Answer 29

platykurtic

Question 30

a distribution identical to the normal distribution as concerns relative
weight in the tails is called

Answer 30

mesokurtic

Question 31

For all normal distributions, kurtosis is equal to

Answer 31

3

Question 32

the use of _______ rather than arithmetic scales is more appropriate when graphing past performance

Answer 32

semilogarithmic

Question 33

The more uncertain the returns, the more _____
exists between
the arithmetic and geometric means

Answer 33

divergence

Question 34

Chebyshev’s inequality

Answer 34

1 - 1/(k^2) -> % contained in k standard deviations from the mean

Question 35

Formula for location

Answer 35

Ly = (n+1) X (y/100)

Question 36

Coefficient of variation formula

Answer 36

Standard deviation/mean