What is ‘T Distribution’
A type of probability distribution that is theoretical and resembles a normal distribution. A T distribution differs from the normal distribution by its degrees of freedom. The higher the degrees of freedom, the closer that distribution will resemble a standard normal distribution with a mean of 0, and a standard deviation of 1.
The T distribution is also known as the “Student’s T Distribution”.
Explaining ‘T Distribution’
The use of a T distribution is precluded by the standard deviation of the population parameter being unknown and allows the analyst to approximate probabilities, based on the mean of the sample, the population, the standard deviation of the sample and the sample’s degrees of freedom. As the sample’s degrees of freedom approaches 50, the T distribution will virtually be identical to the normal distribution.
Further Reading
- The distribution of stock returns: international evidence – www.tandfonline.com [PDF]
- Spurious regressions in financial economics? – onlinelibrary.wiley.com [PDF]
- Scaling of the distribution of fluctuations of financial market indices – journals.aps.org [PDF]
- An empirical comparison of published replication research in accounting, economics, finance, management, and marketing – www.sciencedirect.com [PDF]
- The econometrics of financial markets – www.sciencedirect.com [PDF]
- Power laws in economics and finance: some ideas from physics – www.tandfonline.com [PDF]
- Estimating stock market volatility using asymmetric GARCH models – www.tandfonline.com [PDF]
