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2013, Study Session # 3, Reading # 10

SE = Standard Error

= Rises SAMPLING & ESTIMATION  = Approaches to
RV = Random Variable
df = Degrees Of Freedom
CI = Class Interval
n = Sample Size

Sample Methods of Sampling Sampling error

A subgroup of Sample Corresponding
population. Statistic Population
Simple Random Stratified Random Systematic Parameter.
Sample Statistic Sampling Sampling Sampling
th

It describes the
Each item of the
Uses a classification
Select every k
Sampling Distribution
characteristic of population under system. number.
Probability distribution of all
a sample. study has equal
Separates the
Resulting sample
possible sample statistics

Sample statistic probability of population into strata should be
computed from a set of
itself is a random being selected. (small groups) based approximately
equal size samples
variable.
There is no on one or more random
randomly drawn.
guarantee of distinguishing
selection of characteristics.
items from a
Take random sample Standard Error (SE) of
particular from each stratum. Sample Mean
category.
It guarantees the
Standard deviation of
selection of items the distribution of
from a particular sample means.
category.
x =
n

If is not known then;
s
Data Time sx =
Data Observational Characteristics n
Time series Observations Units
As n
; x approaches
taken over
equally spaced Longitudinal Same Multiple and
time interval S.E .
Panel Multiple Same
Cross- sectional Save time
Single point
estimate

Students T-Distribution

Bell shaped.

Shape is defined by df

df is based on sample size.

Symmetrical about its mean.

Less peaked than normal distribution.

Has fatter tails.

More probability in tails i.e., more observations are
away from the centre of the distribution & more
outliers.

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2013, Study Session # 3, Reading # 10

Central Limit Theorem (CLT) Point Estimate (PE) Confidence Interval (CI)
For a random sample of size n with;
Single (sample) value Estimates

population mean , used to estimate
Results in a range of values within

finite variance (population population parameter. which actual parameter value will
variance divided by sample size)  fall.
 =
, the sampling distribution of
2

PE (reliability factor SE).
sample mean x approaches a
= level of significance.
normal probability distribution Estimator: Formula used
1- = degree of confidence.
with mean & variance as n to compute PE.
becomes large.
Desirable properties of
Properties of CLT an estimator

For n 30 sampling distribution
of mean is approx. normal. Unbiased Efficient Consistent

Mean of distribution of all possible Expected value of If var ( ) < var ( ) As n
, value of
samples = population mean . estimator equals of the same estimator
parameter e.g., parameter then  is approaches

Variance of distribution =

E() = i.e, efficient parameter &
sampling error is than  sample error
zero. approaches 0
e.g., As n 
 &
CLT applies only when
SE  0
sample is random.

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 3
2013, Study Session # 3, Reading # 10

Distribution Variance Sample Test Statistic Issues Regarding Selection

Non Small Large of Appropriate Sample Size
Normal Known Unknown t z
normal (n<30) (n30) As n
; s.e.  & hence C.I is
        narrow.
       
        Limitations of Large
      *  Sample Size
       
       
Large sample may Cost may
       
include increase more
      * 
observations from relative to an
more than one increase in
*The z-statistic is theoretically acceptable here, but use of the t-statistic is more population. precision.
conservative.

Biases

Data Mining Bias
Statistical significance of
the pattern is
overestimated because
the results were found
through data mining.
Sample Selection Bias

Systematically excluding
some data from analysis.

It makes the sample
non-random.
Look ahead Bias
Using sample data that
wasnt available on the
test date.
Time-period Bias
Time period over
which the data is
gathered is either
too short or too long.

Data Mining Survivorship Bias

Using the same data to
find patterns until the one
that works is discovered.
Warning Signs of
Data Mining

Most common form of
sample selection bias.

Excluding weak
performances.

Surviving sample is not
random.

Evidence of testing Lack of economic

many different, mostly theory consistent
unreported variables. with empirical
results.

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