Look Who it Was Random video

Variability of Stock Return Standard Deviation | Corporate Finance | CPA Exam BAR|CMA Exam |Chp12 p3

3,845 views · Published 14 April 2017 · 21:20 · Indexed 1 November 2026

Channel: Farhat Lectures. The # 1 CPA & Accounting Courses · 2017 · Education

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How do you measure the variability of stock returns with variance and standard deviation? This lecture explains how these risk measures work, how they relate to average returns, and how volatility differs across asset classes — a BAR topic for CPA and CMA candidates and finance students.

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Video Timeline & Key Concepts:
0:01 — Risk premium and the link between return and variability
2:42 — Understanding variability with an intuitive example
11:04 — Variance: the average squared deviation from the mean
12:44 — Standard deviation as the square root of variance
16:24 — Historical volatility across asset classes
19:05 — The normal distribution of returns
19:50 — Conclusion: risk and reward

Frequently Asked Questions:

What is the variance of stock returns?

Variance measures the average of the squared differences between actual returns and the average return, quantifying how spread out the returns are.

What is standard deviation?

Standard deviation is the square root of variance. It expresses volatility in the same units as returns, making it a more intuitive measure of how far returns typically deviate from the mean.

Why square the deviations when calculating variance?

Squaring prevents positive and negative deviations from canceling out and gives greater weight to larger deviations, better capturing overall variability.

Which asset class is the most volatile historically?

Historically, small company stocks have the highest standard deviation and are the most volatile, while assets like U.S. Treasury bills have the lowest.

How does the normal distribution relate to returns?

Returns often approximate a bell-shaped normal distribution, so a large portion of annual returns fall within one standard deviation of the average.

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