CAIA Chapter 7: Hypothesis Testing in Alternative Investments
Hypothesis Testing in Alternatives Investments
Hypothesis Testing in Alternatives Investments
Set of flashcards Details
Flashcards | 22 |
---|---|
Language | English |
Category | Finance |
Level | University |
Created / Updated | 20.12.2014 / 13.03.2015 |
Licencing | Not defined |
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Null Hypothesis
is usually a statement that the analyst is attempting to reject, typically that a particular variable has no effect or that the variable's true value is equal to zero
Alternative hypothesis
is the behavior that the analyst assumes would be true if the null hypothesis is rejected. The null and the alternative hypotheses are usually stated in such a way that they are mutually exclusive.
test statistic
which is a function of observed values of the random variables and typically has a known distribution under the null hypothesis. The test statistic is the variable that is analyzed to make an inference with regard to rejecting or failing to reject the nul
Significance level or confidence level
are often used interchangeably to indicate the probability that a result may be due to randomness, in the case of the significance level, or not due to randomness, in the case of the confidence level (sig=1-5%; conf=95-99%)
P-Value of 2%
indicated that there is only a 2% chance that the estimated value would occur given the assumption that the null hypothesis is true
Economic significance
describes the extent to which a variable in an economic model has a meaningful impact on another variable in a practical sense. One can be very confident about significance but size and dispersion of parameter may indicate that parameter has minor impact
Type I error
false positive is when an analyst makes the mistake of falsely rejecting a true null hypothesis
Type II error
also known as false negative is failling to reject the null when it is falese