Hypothesis Test Concerning the Equality of the Population Means
Analysts are often interested in establishing whether there exists a significant difference between the means of two different populations. For instance, they might want to know whether the average returns for two subsidiaries of a given company exhibit a significant…
Decision Rules in Hypothesis Tests
The decision rule refers to the procedure followed by analysts and researchers when determining whether to reject or not to reject a null hypothesis. We use the phrase “not to reject” because it is considered statistically incorrect to “accept” a…
Test Statistic, Type I and Type II Errors, Power of a Test, and Significance Levels
A test statistic is a standardized value computed from sample information when testing hypotheses. It compares the given data with what an analyst would expect under a null hypothesis. As such, it is a major determinant of the decision to…
