Hypothesis Testing

Hypothesis Testing

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Today, the use of statistics has proven essential in testing and proving hypothesis in various domains and researches. Various statistical tests such as SPSS, t-test, one sample median test, binomial test, chi-square goodness fit test, the Wilcoxon-Mann-Whitney test, and Fisher’s exact test among multiple others are different approaches that researcher use to prove hypothesis using statistics in creation of mathematical models test the ideas or claims. In the field of finance, statistical testing has played a crucial role in proving financial hypothesis. Finance personnel need statistical tests and analysis to accurately make future financial predictions.

The hypothetical steps used in hypothesis testing in finance include:

Some of the questions that should be asked in relation to statistical tests include:

  1. Stating the null or alternative hypotheses
  2. Consideration of statistical assumptions that have already been made to ensure coherence with the population being tested
  3. Using appropriate test statistic to determine the appropriate probability distribution
  4. Selecting the significant level
  5. Stating the decision rule based on the significant level
  6. Using the data to calculate the test statistic
  7. Rejecting or accept the null hypothesis
  8. Determine the error made
  9. Consideration of economic or financial aspects applied to the problem

The outlined questions are answered based on the statistical analysis they want to prove. In the end, they will be geared towards answering a hypothesis and relating it to the financial aspect in question to enable decision making or prediction. Hypothesis testing can result to major conclusions that can be very useful in research.

  1. Determine the difference between the paired (unpaired) groups
  2. What is the association between the presenting variables?
  3. Does the statistical tests prove any hypothesis?
  4. What decision should the financial advisor make?
  5. Do you accept or reject the hypothesis?
  6. What is the probability that the company will make profit/loss?
  7. What does the error made in the test tell you?