BMGT 340 Lecture Notes - Lecture 13: Market Capitalization, Standard Deviation, S&P 500 Index

• School: University of Maryland
• Department: Business and Management
• Course: BMGT 340
• Professor: Michael Padhi

Document Summary

Chapter 11 risk and return in capital markets in-class notes. Average annual returns: arithmetic mean which is the average of all the periods of time. Aka if the standard deviation is low: geometric return and the sample mean is close to the true population mean, Useful for describing the distribution of returns over a period. If the distribution of possible returns doesn"t change over time, that"s when this is a good measure of expected return. It"s a better description of the long term historical performance. Takes into account the compounding from period to period of an investment (1+r1)(1+r2)(1+rt) ^ (1/t) - 1: example: If you have returns of 8%, 12% and -4% How well can we predict returns: you cannot. Nobody ever really knows how the stock market will turn out. Historical risks and returns: variance and volatility of returns. Standard deviation is the square root of variance. Standard deviation of returns from asset classes: small stocks.