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 ... 
Beta
A measure of the volatility, or systematic risk, of a security ... 
A Priori Probability
Probability calculated by logically examining existing information. ...

What is the difference between a simple random sample and a stratified random sample?
Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >> 
What are the advantages and disadvantages of using systematic sampling?
As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >> 
What is the difference between the standard error of means and standard deviation?
The standard deviation, or SD, measures the amount of variability or dispersion for a subject set of data from the mean, ... Read Full Answer >> 
What is the theory of asymmetric information in economics?
The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >> 
How does market risk differ from specific risk?
Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >> 
How is perpetuity used in the Dividend Discount Model?
The basic dividend discount model (DDM) creates an estimate of the constant growth rate, in perpetuity, expected for dividends ... 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 Is Supply?
Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics. 
Economics
Modified Internal Rate of Return (MIRR)
Modified internal rate of return (MIRR) is a variant of the more traditional internal rate of return calculation. 
Fundamental Analysis
What is Quantitative Analysis?
Quantitative analysis refers to the use of mathematical computations to analyze markets and investments. 
Fundamental Analysis
Understanding the Simple Random Sample
A simple random sample is a subset of a statistical population in which each member of the subset has an equal probability of being chosen. 
Economics
What is Systematic Sampling?
Systematic sampling is similar to random sampling, but it uses a pattern for the selection of the sample. 
Fundamental Analysis
Explaining Expected Return
The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.