Episode Details

Investing is a game of odds, and thus lends itself well to probabilistic analysis. I start by looking at the possibility that stocks follow a random walk, where the chance that they will go up or down in the next period is 50%, and how to use stock price data to accept or reject this hypothesis. I then look at default risk in companies, a key concern for lenders and bondholders in companies, and how estimates of default can vary across companies, based upon bond ratings. I also look at how data can be used to make forecasts of default at companies, using the Altman Z score as a springboard. I close with an assessment of how constructing and rolling back decision trees can help in decision making, using a diabetes drug development example.
Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/Statistics101/Slides/Session6A.pdf
Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/Statistics101/postclass/session6Atest.pdf
Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/Statistics101/postclass/session6Asoln.pdf
Webpage for statistics class: http://people.stern.nyu.edu/adamodar/New_Home_Page/webcaststatistics.htm
YouTube Playlist for this class: https://www.youtube.com/playlist?list=PLUkh9m2BorqmXcRzWFbzcjMd7fYErVexF

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