Arithmetic vs. Geometric Means: Empirical

Essay specific features

 

Issue:

Business

 

Written by:

Susan T

 

Date added:

February 5, 2015

 

Level:

University

 

Grade:

A

 

No of pages / words:

7 / 1817

 

Was viewed:

2398 times

 

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Essay content:

Allyn Joyce’s June 1995 BVR article initiated arguments for the GM as the correct mean. The previous articles have centered around Professor Ibbotson’s famous example using a binomial distribution with 50%-50% probabilities of a +30% and -10% return. The debate has been very interesting, but it is off on a tangent, focused on the wrong issue...
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The debate has been very interesting, but it is off on a tangent, focused on the wrong issue. There are theoretical and empirical reasons why the arithmetic mean is the correct one. We will look at both in this article. Theoretical Superiority of Arithmetic Mean Rather than argue about Ibbotson’s much debated above example, I prefer to cite and elucidate another quote from his book: In general, the geometric mean for any time period is less than or equal to the arithmetic mean...
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