Financial Risk Manager Part 1
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A survey is conducted to find investors' perceptions of the financial market. The survey data takes the form (AAA, AA, A, ..., D). Which of the following statistical models would you apply to analyze such data?
I. The Pearson model
II. The Kendall model
III. The Spearman model
Other
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NNikitesh
A
I and II
B
I and III
C
II and III
D
I, II and III
Explanation:
The data is given in ranking order (AAA, AA, A, ..., D), which represents ordinal data rather than continuous numerical data.
Key points:
- Pearson correlation measures linear relationships between continuous variables and assumes interval/ratio scale data.
- Spearman correlation is a non-parametric measure that assesses monotonic relationships using rank-order data.
- Kendall's tau is another non-parametric measure for ordinal data that evaluates the strength and direction of association.
Since the survey data is ordinal (credit ratings in order), both Spearman and Kendall models are appropriate for analyzing such data, while Pearson correlation is not suitable for ordinal data.
Therefore, the correct combination is II and III (Kendall and Spearman models).
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