CFA Level I · CFA Level I Exam · Statistical Characteristics of Asset Returns
An analyst computes the mean of a return series containing one extreme positive outlier. Which measure of central tendency is most likely to be least affected by the outlier?
The median is least affected by an extreme outlier because it depends only on the position of the middle observation rather than on the size of every value. Both the arithmetic and geometric means incorporate all values and are therefore pulled toward the outlier.
- AMedianCorrect
- BArithmetic mean
- CGeometric mean
Explanation
The median depends only on the middle ranked observation(s), so extreme values do not shift it much. The arithmetic and geometric means use every value and are pulled toward the outlier.
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