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new Lecture 3 - Lecture 3 Hypothesis Testing 1 2 Hypothesis...

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1 Lecture 3 Hypothesis Testing

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3 Hypothesis Tests Central procedure in both economics and finance Hypothesis testing is concerned with the probability that a population parameter lies in a given range. Hypotheses are almost always tested in the form of a null (H 0 ) and an alternative (H 1 ) hypothesis.  represents the value of the population parameter, while 0 represents some specific value.

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4 Typical Hypotheses “The stock market is efficient” “The rate of return on bonds is 5 per cent” “British men drink more than Greek men”
5 The Terminology of Hypothesis Testing Null and Alternative Hypotheses Level of significance Critical values Confidence Interval Acceptance (Non-rejection)/Rejection region Two-tailed or one-tailed test p values

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6 Null and Alternative Hypotheses Null Alternative Population Parameter Hypothesised Value O O O H H : : 1
7 Level of Significance Acceptable probability of wrongly rejecting the null hypothesis

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