Page 31 - FINAL CFA I SLIDES JUNE 2019 DAY 4

LOS 12.i: Identify the appropriate test statistic and interpret Session Unit 3:
the results for a hypothesis test concerning the mean
difference of two normally distributed populations 12. Hypothesis Testing

Example: Paired comparisons test: Joe Andrews is examining changes in estimated betas for the common stock of companies in the
telecommunications industry before and after deregulation. Andrews believes that beta may:

1. Decline because of deregulation since companies are no longer subject to the uncertainties of rate regulation; or
2. Increase because there is more uncertainty regarding competition in the industry.

The sample information he gathered is reported in the following figure:

Does deregulation have any impact on the betas of
telecommunication companies?

We need 2TT: How do we know?

Reject Ho!

Let’s use a 5%! Hypothesis decision: A statistically significant difference between mean firm betas before and after deregulation.
Business decision: Support the proposition that deregulation significantly altered risk profiles! Which way?
2 Key Rules: Samples independent? Test of equality of means!
Samples dependent? Paired Comparisons Test!