Hypothesis Testing

Question 1

Traditionally, the field of statistical inference has two subdivisions: _______ and _________.

Answer 1

estimation, hypothesis testing

Question 2

The steps in testing a hypothesis are as follows (7)

Answer 2

1 Stating the hypotheses.
2 Identifying the appropriate test statistic and its probability distribution.
3 Specifying the significance level.
4 Stating the decision rule.
5 Collecting the data and calculating the test statistic.
6 Making the statistical decision.
7 Making the economic or investment decision.

Question 3

The _____________ is the hypothesis to be
tested. For example, we could hypothesize that the population mean risk premium for US equities is less than or equal to zero

Answer 3

null hypothesis

Question 4

The ____________ is the hypothesis accepted when the null hypothesis is rejected. Our alternative
hypothesis is that the population mean risk premium for US equities is greater than zero.

Answer 4

alternative hypothesis

Question 5

A _________ is a quantity, calculated based on a
sample, whose value is the basis for deciding whether or not to reject the null
hypothesis

Answer 5

test statistic

Question 6

There are four possible outcomes when we test a null hypothesis:

1 We reject a false null hypothesis. This is a correct decision.

2 We reject a true null hypothesis. This is called a _____________ .

3 We do not reject a false null hypothesis. This is called a _________.

4 We do not reject a true null hypothesis. This is a correct decision.

Answer 6

Type I error, Type II error

Question 7

Whereas the significance level of a test is the probability of incorrectly rejecting the null, the _______ is the probability of correctly rejecting the null—that is, the probability of rejecting the null when it is false

Answer 7

power of a test

Question 8

The _______ is the smallest level of significance at which

the null hypothesis can be rejected

Answer 8

p-value

Question 9

parametric test

Answer 9

Any test or procedure with either mean and variance of a normal distribution or assumptions about the distribution of the population.

Question 10

We primarily use

ponparametric procedures in three situations: (3)

Answer 10

(1) when the data we use do not meet distributional assumptions
(2) when the data are given in ranks
(3) when the hypothesis we are addressing does not concern a parameter

Question 11

The ___________ is essentially equivalent to the usual correlation coefficient
calculated on the ranks of the two variables (say X and Y) within their respective
samples.

Answer 11

Spearman rank

correlation coefficient