dcfox83

believe Wrote:
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> why is it 4 not 5?


I believe it has to do with the fact that the data in this problem is historical and/or a sample from a larger population. Same idea when when you divide by degrees of freedom -1.

If you open SN book 1 (quant) to page 202-204....the covariance formula is not divided by anything while SN book 4 (corp fin., port mgt, equity) page 117-118 it is divided by n-1.

So if you're doing a covariance problem in the quant section then don't divide by anything and if you're doing a covariance problem in portfolio mgt and they are talking about a sample then divided by n-1.

I wouldn't get too hung up over why.....its just the way the math works out to be in statistics.



Edited 2 time(s). Last edit at Tuesday, December 1, 2009 at 03:21PM by cjb1010.