COMMERCE 2FA3 Chapter 3: Chapter 3
29 Jan 2017
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Document Summary
Historical average return and risk: risk and return are the principle features of investments that investors are naturally concerned with. Ex post: backward looking, means historicall or after the fact. Ex ante: forward looking, means predictive or before the fact. The sample mean- by taking all observations, summing them and the dividing by the sample size where x bar is the sample mean, and n is the sample size. First calculate sample mean, then take each observation, subtract the mean and square the difference; finally sum all these squared deviations from the mean and divide by one less than the number of observations. As predicted by theory, higher levels of risk typically come along with higher returns. This is not necessarily true in short periods of time. What investors care about is the future, if i buy a stock now, how well will it perform. The expected return may not always be what happens.
