One Major Argument Promoting the Use of Parametric Tests Over

question 26

Multiple Choice

One major argument promoting the use of parametric tests over distribution-free tests is that parametric tests are

• A) easier to calculate.
• B) usually robust enough to be unaffected by violation of assumptions.
• C) less affected by outliers than distribution-free tests.
• D) used less frequently and therefore must be more elite.

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Definitions:

Nonfactor Risk

Nonfactor Risk, also known as specific or idiosyncratic risk, is the part of an asset's risk that is not correlated with overall market movements and is unsystematic.

Security Market Line

A graphical representation in the Capital Asset Pricing Model that shows the relationship between the expected return of an investment and its beta, representing risk.

APT

Stands for Arbitrage Pricing Theory, a model that predicts a security's returns using the linear relationship between its expected return and macroeconomic factors.

Factor Intensity

The measure of how much of a certain factor of production (labor, capital, etc.) is used in the production of a good or service.