Page 36 - 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 2) Session Unit 3: 12. Hypothesis Testing
the equality of the variances of 2 NDPs based on 2
independent random samples.

So, how does the F test work?
Df: n1 – 1 and n2 – 1

F = 1, variances are equal; Always put the larger variance in the numerator..

Example: F-test for equal variances: Annie is examining the earnings for two different industries, suspecting that the earnings of the textile
industry are more divergent than those of the paper industry. To confirm this, she took a sample of 31 ‘textile’ and 41 ‘paper’ companies,
and measured the sample SD of earnings across the ‘textile industry’ to be $4.30 and ‘paper industry’ to be $3.80.
At 5% SL, do the textile industry earnings have a greater SD than those of the paper industry?

Earnings variances of the industries are
not significantly different from one
another at a 5% SL: So?
Placing them in your portfolio will not
diversify your risk that much?