Module 11.2: Tests of Means and P-values

Question 1

Does statistical significance equal economic significance?

Answer 1

No, several factors need to be considered.

Question 2

What important factors need to be considered for statistical significance to be economically significant?

Answer 2

Transaction costs
Taxes
Risk

Question 3

What is the p-value?

Answer 3

p-value is the probability of obtaining a test statistic that would lead to a rejection of the null hypothesis, assuming the null hypothesis is true.

if the p value is 3%, a 4% or 5% significance value would reject the null hypothesis.

Question 4

What test is employed when the population variance is unknown and either of the following conditions exist?

1) the same size is greater than or equal to 30
2) the sample is small (less than 30) but the distribution of the population is normal or approx normal

Answer 4

T-Statistic

Question 5

What is the formula for a t-statistic?

Answer 5

t statistic = sample mean - hypothesized population mean / standard error (standard deviation of sample / square root of sample size)

Question 6

What test is employed when the population variance is known and the sample size is larger than 30 or less than 30 but the population distribution is normal?

Answer 6

Z-statistic

Question 7

what is the formula for z statistic?

Answer 7

z statistic = sample mean - hypothesized population mean / standard error (standard deviation of population/ square root of sample size

Question 8

How do you determine whether to use a z statistic or t-statistic when hypothesis testing?

Answer 8

Depends on sample size, distribution of the population, and whether or not the variance of the population is known.