Q&A: Give some examples of when a nonparametric test should be used.

  • When the data is in the form of rankings (ordinal-scale data): ie. rank the performance of investment managers
  • When the data does not involve a parameter: ie. evaluate whether or not an investment manager has had a statistically significant record of consecutive successes
  • When The distribution of the underlying population is unknown (ie. not normal). Other tests, such as a median test or the sign test, can be used in place of t-tests for means and paired comparisons, respectively.

Bonus Points_

  • Parametric tests are concerned with the values of parameters, such as means or variances. Parametric tests make assumptions about the distribution of the population underlying the sample from which test statistics are derived.
  • In general, parametric tests have stricter assumptions, and when met, allow for stronger conclusions. Non-parametric tests have broader applicability.

Category: Quantitative Analysis

Category: C++ Quant > Finance

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