SESSION:13 Statistical Analysis in FinanceVideo Activity

Session:13 Statistical Analysis in Finance

Video Activity

Principles of Finance | Leadership Development – Micro-Learning Session

Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-finance

Normal Distribution Stock Return Calculations

1 . Assume the return on stocks follows a normal distribution. Is it more likely that a stock will return between -1 and +1 standard deviations from the mean or between -2 and +2 standard deviations from the mean? Why?

2 . Would an investor be likely to prefer a stock that has a smaller standard deviation for annual stock returns or one with a larger standard deviation for annual stock returns? Why?

Portfolio Weights

3 . What are the reasons for calculating portfolio weights? What useful information does this provide to the investor?

4 . What are the advantages and disadvantages of the equal weighting approach and the market cap weighting approach for portfolio allocation strategy?