Stratified sampling

Dividing a population into groups that share a characteristic and sampling randomly within each, in proportion to its size. More precise than simple random sampling when the groups differ.

Where you will meet it

Stratified sampling appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Set out the segments of the bond market and the kinds of bond indexes
  CFA Level I · Fixed Income

  “Replicating a bond index fully is impractical because of its many illiquid issues and constant turnover, so managers typically use stratified sampling.”

• Contrast ways of sampling and explain sampling error
  CFA Level I · Quantitative Methods

  “Simple random sampling gives every member an equal chance; stratified sampling divides the population into groups and samples within each, which improves precision when the groups differ.”

• Weigh full replication against stratified sampling and optimisation as ways to build an index-tracking equity portfolio
  CFA Level III · Portfolio Management Pathway

  “Stratified sampling divides the index into cells, for example sector by size, and holds a sample of stocks in each cell so that cell weights match the index; it suits broad indexes and smaller portfolios.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with S · Glossary