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Mean is one of several measures of central tendency, representing the center of a distribution. For example, the mean of 10% and 20%, is 15%. It is calculated by taking the sum of the returns divided by the number of observations. Because it is a simple average it can be skewed by outliers.
Synonym: average
For context, we've all calculated and interpreted the mean over numerous occassions, and in Finance the mean is typically the first measure used to evaluate a distribution. From there, the financial analyst builds on this with measures such as standard deviation, skew and kurtosis.
Other measures of central tendancy are less impacted by outliers, so in some cases where robust statistics are used, the analysis of a distribution using the mean is supplmented with the median and mode. This is particularly true in situtions where a distribution resembles a lognormal distribution, such as with market captitalization.
Ann: Why does Kay want to change the word mean to
average in our presentation deck?
Jim: She thinks it sounds too mean.
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False
15%
Still unclear on the Mean for investments? Check out the Quant 101 Series where we go through many examples in Excel.
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