Alan Barnes, CFA, is interested in the expected quarterly return on FTSE 100 stock index. He has data for the last five years and calculates the average return on the index over the last 20 quarters. This average return:
The 20 quarters he has used are a sample of all the possible outcomes for the quarterly returns on the index. The difference between the true population parameter (mean index return) he is trying to estimate and the sample statistic he has calculated is called the sampling error. The arithmetic mean is the appropriate estimator of the next period s return.