Page 23 - FINAL CFA I SLIDES JUNE 2019 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?