What is the Adjusted Mean

The adjusted mean arises when statistical averages must be corrected to compensate for data imbalances. Outliers, present in data sets will often be removed as they have a large impact on the calculated means of small populations; an adjusted mean can be determined by removing these outlier figures. Adjusted means are also called "least squares means" and are calculated using a multiple regression equation.

BREAKING DOWN Adjusted Mean

For example, in studying both men and women who participate in a particular behavior or activity, it may be necessary to adjust the data to account for the impact of gender on the results. Without using adjusted means, results that might at first seem attributable to participating in a certain activity or behavior could be skewed by the impact of participants' gender. In this example, men and women would be considered covariates, a type of variable that the researcher cannot control but that affects an experiment's results. Using adjusted means compensates for the covariates to see what the effect of the activity or behavior would be if there were no differences between the genders.

Other Examples of Using the Adjusted Mean

A financial markets example might include adjusting a mean average for a regime change: which is the is the replacement of one government regime with another. In theory, a new government will introduce policies and changes rendering comparisons between two different government styles meaningless.

Another example where an adjusted mean would be necessary comes from the Great Recession. In 2009, to ease banks' capital controls, FASB suspended the mark-to-market rule. Thereby, instantly improving the large bank's balance sheets. If an analyst were reviewing trends in balance sheet change in 2010 for the trailing ten years, the mean average would be problematic. After the suspense of mark-to-market accounting methods, the bank's balance sheets were materially better (on paper) than the before the change in the accounting rule. Thus, to someone simply looking at a ten year average in 2010, the results would be rather skewed without adjusting the mean for the change in mark-to-market accounting.