Page 34 - FINAL CFA I SLIDES JUNE 2019 DAY 4

LOS 12.j: Identify the appropriate TS and interpret the
results for a HT concerning 1) the variance of a NDP, and Session Unit 3:
2) the equality of the variances of 2 NDPs based on 2 12. Hypothesis Testing
independent random samples

So, how does the chi-square test work?

Example: Chi-square test for a single population variance: Historically, HREF has advertised that its monthly returns have a SD = 4% (based
on estimates from the 1990–1998). HREF wants to verify whether this claim still adequately describes the SD. HREF collected monthly
returns for the 24-month period between 1998 and 2000 and measured a SD of monthly returns of 3.8%.

Fail to Reject Ho that the variance is equal to 0.0016.
At 5% SL (the recent SD is close enough to the advertised SD, that)
we cannot say that the advertised variance is different from 4%