Q1: What is the "Law of Large Numbers?" And what are the benefits and costs in regards to conducting statistical analysis on the data sets?
- Describe the difference and similarities between arithmetic and geometric means?
In what situation would you use them? Show equations!
Q2: What are the characteristics of a normal distribution of data (say year-over-year quarterly/annualized total stock returns)? Why is this important in regards to using statistical techniques? What are some other distributions?
Show Diagram!!!
- What is Central Tendency? And how would you measure it? Give three techniques. Show equations and definitions!
- What is the shape of the distribution of investment returns: Show Diagrams/Definitions!
- Skewness:
- Kurtosis:
- What are...And how would you use them in financial analysis? Show Diagrams!!
- Histograms:
- Stem-Leaf:
- Box-Plots:
Q3: What is? - how do you calculate? - and how would you use for financial analysis?......Show equations!!
- Variance:
- Standard Deviation:
- Confidence Intervals:
- Confidence Levels (give three standard examples):
- "Z", "t" and "F" Statistics:
Q4: What is the "Coefficient of Variation?" What is the inverse? (Show equations/diagrams) What does it tell you in regards to units of risk and return?
Why is this important for an investor? How would you use these measurements?
Show Equations!!
Q5: What is Covariance between variables (say return between stocks over time)?
(Show equation) What does this measure? What if you had high, medium or low covariance between stock returns? What does this tell you and what are the implications? Show equation, answer all questions.
Q6: What is the Correlation Coefficient (Say between two stock returns over time)?
How do standard deviations and covariance interact in this equation (show equation)? What is the correlation between stocks/bond market returns, and inflation/inflation expectations/interest rates over time? What does a -1, 0, and +1 correlation mean? Show equation and answer all questions!
Q7: Show the Portfolio Standard Deviation (equation). Say for total returns on assets in a stock portfolio. Show equation!
- What would HIGH covariance between stocks in the portfolio have on the portfolio standard deviation?
- What would LOW covariance between stocks in the portfolio have on the portfolio standard deviation?
Q8: What is the value of using regression techniques? Show forecast equation!
- What is and how would you use, in analyzing stocks or companies: Show equations
- Cross-Sectional Regression:
- Time-Series Regression (Forecasting)
- What are the dependent and independent variables (give a few examples)?
- How would you select and determine these variables in a model? Important!
- What are tests of variable/model statistical significance? See regression tests!
- What is - and what is the problem of - Multi-Colinearity? Define! Solve!
- How would you solve for this?
- What is Internal and External Validity? Explain!
Q9: What is the difference between un-systematic and systematic risk? Show graph!
- What type of risk can be diversified away? How would you do this? What statistical measures would you have to look at? Explain!