Microsoft Word - ch1.doc by Aswath Damodaran

Author:Aswath Damodaran
Language: eng
Format: epub
Published: 2008-10-22T16:46:22+00:00

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Another is an extreme value distribution, which can also be altered to generate both positive and negative skewness, depending upon whether the extreme outcomes are the maximum (positive) or minimum (negative) values (see Figure 6A.13) Figure 6A.13: Extreme Value Distributions

Are there upper or lower limits on data values?

There are often natural limits on the values that data can take on. As we noted earlier, the revenues and the market value of a firm cannot be negative and the profit margin cannot exceed 100%. Using a distribution that does not constrain the values to these limits can create problems. For instance, using a normal distribution to describe profit margins can sometimes result in profit margins that exceed 100%, since the distribution has no limits on either the downside or the upside.

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