Anon

412 The Basics of financial economeTrics

While the mean is largely affected, the median is not affected and the
trimmed mean is only marginally affected by doubling the value of 20% of
the points.
We can perform the same exercise for measures of the spread. If we
compute the standard deviation, the IQR, and the MAD, we obtain the fol-
lowing results:

Standard deviation = 0.0229

IQR = 0.0237

MAD = 0.0164

Let’s multiply the 10% highest/lowest returns by 2. The new values are:

Standard deviation = 0.0415

IQR = 0.0237

MAD = 0.0248

The MAD are less affected by the change than the standard deviation while
the IQR is not affected. If we multiply the 25% highest/lowest returns by 2
we obtain the following results:

Standard deviation = 0.0450

IQR = 0.0237 (but suddenly changes if we add/subtract

one element)

MAD = 0.0299