Quantitative Methods
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Question one
1.
Based on the article above, I think that some the qualitative and quantitative variables that the financial models will use include; firstly, the qualitative variables that will be used will consist of some of the business expenses that the firm spend on social activities improving customer services and promote their good will. The wellness and motivation of the work and human resources are also other qualitative variables that are used. An example qualitative data stated in that article is seen where the author's states “…which started as a quant hedge fund, has proliferated by managing other people’s money in smart beta funds. It focuses on “factors” such as quality and momentum that it says lead to reliable outperformance” (Coy, 2017). The quantitative variables used on the other hand include variables such as the expenses, revenue, profit margins, and taxes. Most of the quantitative variables are found in the financial statements. The quantitative variables used on the other hand include variables such as the expenses, revenue, profit margins, and taxes. Most of the quantitative variables are found in the financial statements. Example in that article is when the author states that “Vanguard, the big investment manager, calculated in 2012 that ETFs did great on their back tests, outperforming the market by 10 percentage points a year on average in the five years before they went live, but then underperformed the market by 1 percentage point a year in the five years afterward” (Coy, 2017).
The impact of the qualitative and quantitative variables that the financial models will use is that the qualitative data helps the researcher determine the intangible effects that the variables have on the business and project the increase of efficiency and productivity of the firm. The impact of using quantitative data, on the other hand, it helps the researcher to quantify the financial performance of the business and make future projections of cost, prices and also profits. In short, the impact of the qualitative and quantitative variables is to help the individual make better financial management decisions.
2.
If the financial theorist was able to find data for the whole population, I think the model will be more accurate than using a sample because when conducting research the quality of the sampling matters. Obtaining the entire sample size is more appropriate and precise as is more representative of the population, thus making it easier to make an accurate general conclusion. The whole population also necessary, when the goals of the researchers are to reduce the chance of failure as the whole sample size will broaden the range where the data will be obtained thus forming a better picture of the analysis. It is evident that the effectiveness of any financial model is to provide accurate data for analysis. Determining accurate sample is usually tricky, as some of the items in the population might not represent the others, thus having the whole population allows extensive statistical calculations, thus reducing errors and promotes confidence level of the data, something that a sample might not provide. Lastly, the primary aim of the financial model is to recreate the actual business; this can only be possible while using the whole population, rather than testing assumptions and generalization from a sample.
3.
The advantages of using the statistics include;
• Statistics are usually cheaper and consume less time, mainly when have been previously collected and compiled by someone else.
• It is easier to analyze them since the correlations and patterns are visible and apparent.
• They can use and reused to establish the difference between the variables.
• Statistics can also be imitated to establish the representativeness and also to check the changes.
The disadvantages of using the statistics include;
• Statistics cannot be used to evaluate the opinions of the participants or the users.
• In some cases, statistics are time-consuming, when collecting first-hand data.
• If the statistics are drawn by someone else, it is difficult for the researcher to establish the validity of the information.
• The statistic data are also open to interference and manipulation thus can accurately show what the researcher wants.
Base on the advantages and disadvantages of using statistics provided above, I agree with the article that statistics, in general, is not accurate because, although they are precise and generalizable, thy lack validity and objectivity thus can be used to tell the entire story accurately directly.
4.
If I were tasked to come up with a new financial model, the process of how I would be able to convince other statisticians and monetary theorists that my model works or is more accurate than the ones currently found on the market, I would do the following;
Firstly, I will convince statisticians and financial theorists by ensuring the cells are more readable by including a key to abbreviation and terms. I will also ensure that the numbers are correctly formatted to provide that long series of digits become easier to parse. Color coding can also be used to convince the other statisticians and financial theorists that my model works or is more accurate than the ones currently found on the market as it will be easier for them to distinguish the assumptions from non-assumptions, and make it ideal for them to read. Making the entire document more readable by organizing my tabs, proper formatting can also be convincing. Lastly, ensuring that the model is logical by providing an explanation for the assumption, and ensuring that I tire them to reality can even convince statisticians and financial theorists my model works or is more accurate. The model can also be made logical by providing a bridge for projected and historical data and including sensitivity analysis. In short, the other statisticians and financial theorists will only be convinced if the model consists of supportable population inputs and logical assumptions that are presented.
Question 2
1.
The article by Hickey (2012) is about how over the years, Fox new has been able to manipulate its statistics by graphically presenting its data in a tricky manner. The author claims that the statistical information submitted by Fox News on various issues is not accurate. I agree that there are different undeniable facts that statistics can be manipulated, thus become misleading. Misleading statistics can be used to twist information to favor a particular point of views. Therefore, it is vital for statisticians and financial theorists to understand how to recognize manipulated statistics.
2.
There is a various problem that I will face when drawing graphs to describe the data include; the question of inaccurate data and poor instructions. In most cases, it is usually difficult to draw a precise and accurate graph when the information collected does not accurately represent the population. The other problem that is likely to be experienced is the defaults in software that is used for drawing charts and graphs, inferring with the clarity and visibility of the figures. The solution to this problem, including using a proper selection of software for drawing charts and graphs and also ensuring the data collected is accurate.
3.
Some of the examples that I see that showed me that the graphs were misused to mislead the reader Include; firstly some of the graphs were not accurately drawn, for instance, the pieces in the pie chart presented in the article contain distorted information as the percents presented do not add up to 100. Secondly, one of the graphs is accurate, but misleading because the chart is not labeled correctly, for instance, the graph showing the Federal Reserve in the U.S has no Y-axis to show the difference. The other evidence that showed me that the graphs were misused to mislead the reader some of the scales are distorted, for instance, the graph showing the unemployment rate has an enlarged scale. Lastly, axis manipulation, for instance, the graph showing the labor force statistics, its axis is manipulated to change the impression of the magnitude difference.
4.
Based on the above-redrawn graph, there are several visible differences I made to represent the data more accurately, for instance, in the first graph and the last, I ensure that the percentages add up to 100. I also change the title of the heading of the original chart which was “Unemployment Rate under President Obama” to avoid influencing the interpretation of the reader to a particular regime.
Reference List
Coy, P., 2017. Investors Always Think They’re Getting Ripped Off. Here’s Why They’re Right. [Online] Available at https://www.bloomberg.com/news/articles/2017-04-06/lies-damn-lies-and-financial-statistics
Hickey, W., 2012. EXPOSED: Here Are The Tricks That Fox News Uses To Manipulate Statistics On Its Graphics. [Online] Available at http://www.businessinsider.com/fox-news-charts-tricks-data-2012-11?IR=T&r=US&IR=T