In continuing to ponder the inherent problems in making non-modal distributional assumptions about stocks, I got to wandering through one of my old statistics texts. That, in turn, got me thinking for the first time in ages about non-parametric tests, which remain the wondrous things I remember them to be.
With the preceding in mind, here is the Second Commandment from John Alroy’s excellent Ten Statistical Commandments:
Thou shalt run non-parametric tests! If the parametric and non-parametric tests come out the same, thou hast lost nothing. If they don’t, the data are non-normal, the parametric test is wrong, and thou shalt use the non-parametric result. Spearman, Mann-Whitney, and Kolmogorov-Smirnov are the Holy Trinity (or Quintinity, or whatever). Worship them!
Truer words ne’er said.