# Galton Board Articles

Mark Hebner and IFA Contributors
Wednesday, February 25, 2015

### Archive

Since the firm’s founding in 1999, investor education has been one of the cornerstones of our business model. Understanding the link between investment knowledge and risk capacity, our commitment to providing empirical insight to how financial markets work makes our clients better investors, able to handle a higher capacity for

"The probable is what usually happens." - Aristotle Say "HELLO" to Francis, IFA’s newest probability machine, named after Francis Galton, an English mathematician who was an expert in many scientific fields. (Click here to play the video of Francis in action) Galton’s probability machine demonstrates how a normal distribution is created

Question: Are Monthly Stock Market Returns Normally Distributed? What is the best way to describe the distribution of stock market returns—a normal distribution, lognormal, or something else? What should investors do with this information? Note: The question above was taken from DFA’s Fama/French Forum. Professors Fama and French gave this response: “Distributions of daily and monthly stock returns

The Random Walk Theory essentially states that there are no discernible patterns in stock market prices. The logic and reasoning goes like this.

Many measurements seem random, such as the heights of humans, the length of leaves, the roll of 5 dice, and the change of stock market prices. But when academics, statisticians and mathematicians view the world, they see patterns that others do not notice.

In the field of finance, standard deviation represents the risk associated with a security (stocks or bonds), or the risk of a portfolio of securities (including actively managed mutual funds, index mutual funds, or ETFs).

Anyone who has visited IFA’s office in Irvine will likely have a fond memory of Francis, IFA’s probability machine, named after Francis Galton, an English mathematician who was an expert in many scientific fields. For those needing a refresher or a first look,

If you have ever spent any time in a casino, it is likely that you have seen supposedly random events that appeared to be non-random. Perhaps the roulette wheel came up red seven times in a row, for example. If your reaction was to place a large bet on black