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multiple stock return
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fluctuation
covariance
independent oftime Contents
on period t
measure of uncertainty in return G
Best guess
Return E ELRit
for allstocks ten N
linear associationbeteen stock returns
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or Gig or Cor Rig
Mi fr stocki or SD Roe
RANDOMVARABLES
parameters
it RÉ i Variable
Suppose R T R
estimator for the men a
1 RT 27 forneale to get
stocks return 51 251 401 51
substitute
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carry of simulehin woo times a plot hatpin A
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instead of 6
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WORKAROUND FOR
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will have worse estimates for u
is swathe for layer sample sizes
If we want a more precise estimate get more data
historied returns maynot follow the
TO STANDARD Using it as
distribution as decreases as
recent returns 1
ERROR CONFIDENCE Intervals an example
T resamples f the date
I1it edz e The Jackknife estimate of bias
eatable the same man Resample R R2 Rte
calculate the sample mean
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calculate the sample men Resample R Rs Ru RT
leave one out estimators
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og sample 1 GI
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HYPOTHESIS TESTING
HYPOTHESES TO BE TESTED
Null Hypothesis ftp AlternateHypothein
directional
SIGN FANCE
A Test Statistic
OF TEST formate
null hypothesis
USE TEST STATISTIC
C Reject the
a FALSE No Error
N error Significance level x
Probability of making Type I
Pr Rejecting Ito f
Power Of A TEST Pr Reject a It is False
EI s Low L t High T
Error it is True
Use 3 Suppose
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a specific value
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of null hypothesis is free
to make a decision
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perches If I if as 5f E pvalue 521
p value to significancelevelCa then don’t reject null hyphens
Reject null hypothesis if pvalue is less then a
9t 0.025T 1 2
i gtfo975T
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truevalue standard error estimated for
Mall Hypothesis Alt Hypothesis
Nool 6010us HI64010
III Rtdoraqt Ho
calculate sample sd
calculate standard em t I i self fat
not sufficient evidence to reject n_
conclude Not sufficient evidence to reject null hypothesis I’WkfPtesnfn
X significance level 12 4 5
Calculate threshold valuesfor 3 score based on a 2 2
null hypothesis
HYPOTHESIS TESTING B W 2
Test Ho M Mz us He de M
GHo agrois
MSFT I SBVX
varia in EÉ
wyd tf 2M www.sina.in
estimate them
using 0.27
or 5 yeas I reorthby returns Tome
81 a threshold valuesfor 3 score from 0.04 e gnome 0.96 1.75 41.75
191 C 1.75 as we have sufficient evidence to reject Ho
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