6.30.2005

Q&A: What's the appropriate alternative hypothesis if...

...an analyst hopes to show that the mean monthly return for stocks listed on the XYZ Stock Exchange is significantly different from 1%?

H(1): u != 1%. The alternative hypothesis corresponds to what the researchers are trying to show.

_ Bonus Points_

  • Accepting the null hypothesis does not prove that it is true. It simply means that there is not sufficient evidence to reject it.
  • Rejecting the null hypothesis does prove the alternate hypothesis is true.
  • The null and alternative hypotheses account for all possible values of the population parameter.
  • 3 basic ways to formulate the null hypothesis: the null hypothesis will always contain "="
    • H0: u = u0, versus H1: u != u0: this hypothesis is two-tailed, which means that you are testing evidence that the actual parameter may be statistically greater or less than the hypothesized value.
    • H0: u<= u0, versus H1: u > u0: one-tailed; it tests whether there is evidence that the actual parameter is significantly greater than the hypothesized value.
    • H0: u >= u0, versus H1: u < u0: one-tailed; it tests whether there is evidence that the actual parameter is significantly less than the hypothesized value

Category: Quantitative Analysis

Category: C++ Quant > Finance

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