Two-Tailed Hypothesis Tests Concerning the Difference between two Population Means using Independent Samples

Investment Analysis

Authors

• Narayana Rao

Published

Creative Commons Attribution 3.0 License

Version 2

Last edited: 15 Nov 2008

Exported: 26 Nov 2011

Original URL: http://knol.google.com/k/-/-/2utb2lsm2k7a/493

Problem on Hand

 

Perform a hypothesis test to determine whether the difference in returns between A and B is statistically different from zero at the 5% level of significance.

 

                                                 Manager A          Manager B

10-year Avg. Annual . Return      12%                        17%

Std. Dev. Of returns                     20%                        22%

 

It is assumed that the distribution of returns is approximately normally distributed. Therefore, test statistic is t.

 

Null Hypothesis: H0: Mu of A – Mu of B = 0

Alt. Hypo:            H1: Mu of A – Mu of B is not equal to zero.

  

 

The t critical value for a two tailed test with a 5% level of significance and 18 degrees of freedom is 2.101. The calculated value of t is -.5318, which is within acceptable range for the statistic and therefore, we cannot reject the null hypothesis.

Comments

Included in research methodology knol book chapter

http://knol.google.com/k/narayana-rao-k-v-s-s/-/2utb2lsm2k7a/3579

Narayana Rao - 15 Dec 2010