DEFINITION of '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.
INVESTOPEDIA EXPLAINS 'Empirical Probability'
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.

Probability Distribution
A statistical function that describes all the possible values ... 
Modern Portfolio Theory  MPT
A theory on how riskaverse investors can construct portfolios ... 
Mutual Fund Theorem
An investing theory, postulated by Nobel laureate James Tobin, ... 
Capital Asset Pricing Model  CAPM
A model that describes the relationship between risk and expected ... 
A Priori Probability
Probability calculated by logically examining existing information. ... 
Beta
A measure of the volatility, or systematic risk, of a security ...

What assumptions are made when conducting a ttest?
The common assumptions made when doing a ttest include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >> 
What is the utility function and how is it calculated?
In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >> 
What are some of the more common types of regressions investors can use?
The most common types of regression an investor can use are linear regressions and multiple linear regressions. Regressions ... Read Full Answer >> 
What types of assets produce negative portfolio variance?
Assets that have a negative correlation with each other produce negative portfolio variance. Variance is one measure of the ... Read Full Answer >> 
When is it better to use systematic over simple random sampling?
Under simple random sampling, a sample of items is chosen randomly from a population, and each item has an equal probability ... Read Full Answer >> 
What are some common financial sampling methods?
There are two areas in finance where sampling is very important: hypothesis testing and auditing. The type of sampling methods ... Read Full Answer >>

Investing Basics
Beta: Know The Risk
Beta says something about price risk, but how much does it say about fundamental risk factors? Find out here. 
Fundamental Analysis
Find The Right Fit With Probability Distributions
Discover a few of the most popular probability distributions and how to calculate them. 
Fundamental Analysis
The Capital Asset Pricing Model: An Overview
CAPM helps you determine what return you deserve for putting your money at risk. 
Options & Futures
An Introduction To Value at Risk (VAR)
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Economics
What's a Centrally Planned Economy?
A centrally planned economy is one where the government controls the country’s supply and demand of goods and services. 
Economics
What are Barriers to Entry?
A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry. 
Mutual Funds & ETFs
ETF Analysis: SPDR S&P 500 Trust
Find out more about the SPDR S&P 500 ETF Trust, the characteristics of the exchange traded fund and the suitability of investing in the fund. 
Mutual Funds & ETFs
ETF Analysis: Energy Select Sector SPDR
Find out more about the Energy Select Sector SPDR Fund, the top holdings of this exchangetraded fund and the characteristics of the fund. 
Investing News
The Financial Singularity Will Destroy Your Return
Given the current and future growth of financial technology, many believe algorithms will soon define what drives market outcomes. With a wealth of big data, algorithms would be able to create ... 
Economics
Explaining the Liquidity Coverage Ratio
The liquidity coverage ratio requires banks and other financial institutions to hold enough cash and liquid assets on hand to weather market stress.