﻿

# Empirical Probability

A form of probability that is based on some event occurring, which is calculated using collected empirical evidence. An empirical probability is closely related to the relative frequency in a given probability distribution.

In order for a theory to be proved or disproved, empirical evidence must be collected. An empirical study will be performed using actual market data. For example, many empirical studies have been conducted on the capital asset pricing model (CAPM), and the results are slightly mixed.

In some analyses, the model does hold in real world situations, but most studies have disproved the model for projecting returns. Although the model is not completely valid, that is not to say there is no utility associated with using the CAPM. For instance, the CAPM is often used to estimate a company's weighted average cost of capital.

Investment dictionary. . 2012.

### Look at other dictionaries:

• Empirical probability — Empirical probability, also known as relative frequency, or experimental probability, is the ratio of the number favourable outcomes to the total number of trials [ [http://www.answers.com/topic/empirical probability statistics Empirical… …   Wikipedia

• Empirical distribution function — In statistics, an empirical distribution function is a cumulative probability distribution function that concentrates probability 1/ n at each of the n numbers in a sample.Let X 1,ldots,X n be iid random variables in mathbb{R} with the cdf F ( x… …   Wikipedia

• Probability — is the likelihood or chance that something is the case or will happen. Probability theory is used extensively in areas such as statistics, mathematics, science and philosophy to draw conclusions about the likelihood of potential events and the… …   Wikipedia

• Empirical Bayes method — In statistics, empirical Bayes methods are a class of methods which use empirical data to evaluate / approximate the conditional probability distributions that arise from Bayes theorem. These methods allow one to estimate quantities… …   Wikipedia

• Empirical measure — In probability theory, an empirical measure is a random measure arising from a particular realization of a (usually finite) sequence of random variables. The precise definition is found below. Empirical measures are relevant to mathematical… …   Wikipedia

• probability theory — Math., Statistics. the theory of analyzing and making statements concerning the probability of the occurrence of uncertain events. Cf. probability (def. 4). [1830 40] * * * Branch of mathematics that deals with analysis of random events.… …   Universalium

• Empirical process — The study of empirical processes is a branch of mathematical statistics and a sub area of probability theory. It is a generalization of the central limit theorem for empirical measures. DefinitionIt is known that under certain conditions… …   Wikipedia

• Probability interpretations — The word probability has been used in a variety of ways since it was first coined in relation to games of chance. Does probability measure the real, physical tendency of something to occur, or is it just a measure of how strongly one believes it… …   Wikipedia

• probability — The mathematics of probability is well understood. Probability is a non negative, additive set function whose maximum value is unity. What is harder to understand is the application of the formal notion to the actual world. One point of… …   Philosophy dictionary

• probability and statistics — ▪ mathematics Introduction       the branches of mathematics concerned with the laws governing random events, including the collection, analysis, interpretation, and display of numerical data. Probability has its origin in the study of gambling… …   Universalium