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Advanced Statistics

Nonparametric statistics are methods that do not assume data follows specific models defined by a limited number of parameters, such as normal distribution. They are particularly useful for analyzing ordinal data and are more widely applicable due to fewer assumptions about sample data, though they may be less efficient than parametric methods. Examples include estimating value at risk (VaR) using histograms instead of assuming normal distribution.

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Reynell Anzano II
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23 views2 pages

Advanced Statistics

Nonparametric statistics are methods that do not assume data follows specific models defined by a limited number of parameters, such as normal distribution. They are particularly useful for analyzing ordinal data and are more widely applicable due to fewer assumptions about sample data, though they may be less efficient than parametric methods. Examples include estimating value at risk (VaR) using histograms instead of assuming normal distribution.

Uploaded by

Reynell Anzano II
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Nonparametric Statistics: Overview, Types, and Examples

What Are Nonparametric Statistics?


Nonparametric statistics refer to a statistical method in which the data are
not assumed to come from prescribed models that are determined by a small
number of parameters. Examples of such models include the normal
distribution model and the linear regression model.

Key Takeaways
• Nonparametric statistics are easy to use but do not offer the pinpoint
accuracy of other statistical models.

• This type of analysis is often best suited when considering the order of
something, where even if the numerical data changes, the results will likely
stay the same.

Nonparametric statistics do not assume that data is drawn from a normal


distribution. Instead, the shape of the distribution is estimated under this
form of statistical measurement. While there are many situations in which a
normal distribution can be assumed, there are also some scenarios in which
the true data-generating process is far from normally distributed.

Example of Nonparametric Statistics


In the first example, consider a financial analyst who wishes to estimate the
value at risk (VaR) of an investment. The analyst gathers earnings data from
hundreds of similar investments over a similar time horizon. Rather than
assume that the earnings follow a normal distribution, they use the
histogram to estimate the distribution nonparametrically. The 5 th percentile
of this histogram then provides the analyst with a nonparametric estimate of
VaR.

What Do Nonparametric Statistics Include?


Nonparametric statistics include nonparametric descriptive statistics,
statistical models, inference, and statistical tests. The model structure of
nonparametric models is determined from data.

How Do Nonparametric Statistics Work?


Nonparametric statistics do not assume the sample size, whether the
observed data is quantitative, or whether the data is drawn from a normal
distribution. Instead, the shape of the distribution is estimated under this
form of statistical measurement.

How Are Nonparametric Statistics Applied?


Because nonparametric statistics make fewer assumptions about sample
data, they are more widely applied and easily used than parametric
statistics. However, nonparametric testing is less efficient in cases where
parametric testing is more appropriate. The reason is that nonparametric
statistics discard some information that is available in the data, unlike
parametric statistics.

The Bottom Line


Nonparametric statistics are a statistical method in which the data are not
assumed to come from prescribed models that are determined by a small
number of parameters, such as the normal distribution model and the linear
regression model. Nonparametric statistics sometimes use ordinal data,
meaning it relies not on numbers but on a ranking or order.

Name: Reynell L. Anzano

Course&year: BSED MATH 3

Subjec: Advanced Statistics

Instructor: Ms. Joy S. Auditor

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