Hypothesis Testing

CFA level I / Quantitative Methods: Application / Hypothesis Testing

Learning Outcome Statements
1. Steps of hypothesis testing, null and alternative hypothesis, one-tailed and two-tailed tests
a. define a hypothesis, describe the steps of hypothesis testing, and describe and interpret the choice of the null and alternative hypotheses;
b. distinguish between one-tailed and two-tailed tests of hypotheses;

2. Type I and Type II errors, power of a test, decision rule, relationship between confidence interval and hypothesis tests
c. explain a test statistic, Type I and Type II errors, a significance level, and how significance levels are used in hypothesis testing; d. explain a decision rule, the power of a test, and the relation between confidence intervals and hypothesis tests;

3. Statistical result and economically meaningful result
e. distinguish between a statistical result and an economically meaningful result;

4. p-value of a hypothesis test
f. explain and interpret the p-value as it relates to hypothesis testing;

5. Appropriate test statistic and interpretation of the results for a hypothesis test for population mean for known and unknown variance of a normally distributed population
g. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the population mean of both large and small samples when the population is normally or approximately normally distributed and the variance is 1) known or 2) unknown;

6. Appropriate test statistic and hypothesis test concerning the equality of the population means of two at least approximately normally distributed populations based on independent random samples with equal or unequal assumed variances
h. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the equality of the population means of two at least approximately normally distributed populations, based on independent random samples with 1) equal or 2) unequal assumed variances;

7. Appropriate test statistic and hypothesis test concerning the mean difference of two normally distributed populations
i. identify the appropriate test statistic and interpret the results for a hypothesis test concerning the mean difference of two normally distributed populations;

8. Chi-square test and F-test
j. identify the appropriate test statistic and interpret the results for a hypothesis test concerning 1) the variance of a normally distributed population, and 2) the equality of the variances of two normally distributed populations based on two independent random samples;

9. Parametric and nonparametric tests and use of nonparametric tests
k. distinguish between parametric and nonparametric tests and describe situations in which the use of nonparametric tests may be appropriate.

Hypothesis Testing: Chapter Test
12 Questions, 18 Minutes

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