CFA CFA Level 1 Rejecting the Null

Rejecting the Null

  • This topic has 1 reply, 2 voices, and was last updated Dec-20 by fp92.
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    • pcunniff
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      Hi —

      Can someone explain the differences between A and C?

      Robert Patterson, an options trader, believes that the return on options trading is higher on Mondays than on other days. In order to test his theory, he formulates a null hypothesis. Which of the following would be an appropriate null hypothesis? Returns on Mondays are:

      A)

      less than returns on other days.

      B)

      greater than returns on other days.

      C)

      not greater than returns on other days.

      Explanation

      An appropriate null hypothesis is one that the researcher wants to reject. If Patterson believes that the returns on Mondays are greater than on other days, he would like to reject the hypothesis that the opposite is true–that returns on Mondays are not greater than returns on other days.

      (Study Session 3, Module 11.1, LOS 11.b)

      Related Material

      SchweserNotes – Book 1

    • fp92
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      A is “less than”, i.e. mathematically it is “<". C is “not greater than”, i.e. mathematically it is “<=" or "less than or equal to". If he believes that returns on Mondays are GREATER than on other days, he needs to find a null hypothesis than is the opposite (and reject that statement), i.e. returns on Mondays are “NOT greater than” (which includes the case where it can be “equal to” as well).

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