Illustration Of The Rank Correlation Test

To illustrate the rank correlation test, consider the data given in Table 11.2. The data pertain to the average annual return (E, %) and the standard deviation of annual return (o,, %) of 10 mutual funds.

The capital market line (CML) of portfolio theory postulates a linear relationship between expected return (E,) and risk (as measured by the standard deviation, o) of a portfolio as follows:

Using the data in Table 11.2, the preceding model was estimated and the residuals from this model were computed. Since the data relate to 10 mutual funds of differing sizes and investment goals, a priori one might expect heteroscedasticity. To test this hypothesis, we apply the rank correlation test. The necessary calculations are given in Table 11.2.

Applying formula (11.5.6), we obtain

Was this article helpful?

0 0
Rules Of The Rich And Wealthy

Rules Of The Rich And Wealthy

Learning About The Rules Of The Rich And Wealthy Can Have Amazing Benefits For Your Life And Success. Discover the hidden rules and beat the rich at their own game. The general population has a love / hate kinship with riches. They resent those who have it, but spend their total lives attempting to get it for themselves. The reason an immense majority of individuals never accumulate a substantial savings is because they don't comprehend the nature of money or how it works.

Get My Free Ebook


Post a comment