Page 38 - FINAL CFA SLIDES DECEMBER 2018 DAY 4

Session Unit 3:

12. Hypothesis Testing

LOS 12.h: Identify the appropriate TS and interpret the results for a HT concerning the equality of the

population means of 2 at least approximately normally distributed populations, based on independent
random samples with 1) equal or 2) unequal assumed variances, p. 290

Example: Difference between means – equal variances: Sue Smith is investigating whether the

abnormal returns for acquiring firms during merger announcement periods differ for horizontal and
vertical mergers. She estimates the abnormal returns for a sample of acquiring firms associated with

horizontal mergers, and those involved in vertical mergers and reported the following:

Smith assumes that the samples are independent, the
population means are normally distributed, and the
population variances are equal.

Smith calculates the t-statistic as –7.3739! How?

= (64-1)0.0001 + (81-1)0.0004 = 0.0003
64+81-2

= 0.01 – 0.025 = - 7.3739! And the df =
0.0003/64 + 0.0003/81 n1+n2-2 = 64 + 81 – 2 = 143!)

Should Smith reject or fail to reject the Ho that the abnormal
returns to acquiring firms during the announcement period

are the same for horizontal and vertical mergers?