Explanation:
A Quantile-Quantile (QQ) plot is used to visually assess whether a dataset follows a theoretical distribution (such as the normal distribution). If the sample perfectly followed a normal distribution, the points would form an exact straight line. Because the points generally follow a straight line with only slight deviations at the tails, it implies that while the data is not perfectly normal (real-world sample data rarely is), using the normal distribution serves as a very reasonable approximation or estimation.
Ultimate access to all questions.
Q.12 Richard Wayne, FRM, is examining a sample of return data which follows normal distribution. He constructs a QQ plot of the data as shown below:
[QQ Plot: Sample Quantiles vs. Theoretical Quantiles — points generally follow a straight line but with slight deviations at tails]
Based on your examination of the QQ plot above, which of the following statements is most likely correct?
A
The returns are normally distributed
B
The return has fat tails relative to the normal distribution
C
The return distribution is negatively skewed relative to the normal distribution
D
The return distribution isn’t normal, but normality would be a reasonable estimation
No comments yet.