Financial Risk Manager Part 1
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A risk analyst wishes to establish the VaR of a hedge fund. She has gathered return data spanning 24 weeks. From her analysis, the mean and standard deviation of weekly returns are 10% and 12%, respectively. Assuming that weekly returns are independent and identically distributed, what is the standard deviation of the mean of the weekly returns?
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NNikitesh
A
10%
B
2%
C
2.45%
D
12%
Explanation:
The standard deviation of the mean, also called the standard error of the mean (SEM), measures how far the sample mean of the data is likely to be from the true population mean. It should not be confused with the standard deviation which measures the variability of a set of data around the mean.
Standard error of the mean = standard deviation of weekly returns / square root of n
= s/√n
= 0.12/√24
= 0.12/4.898979 ≈ 0.02449
≈ 2.45%
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