115 CFA
File: Reading 11 - 1. Introduction

1. Introduction

a. define a hypothesis, describe the steps of hypothesis testing, and describe and interpret the choice of the null and alternative hypotheses;

What is a hypothesis?
A hypothesis is a statement about a population created for the purpose of statistical testing. All hypothesis tests involve making statements about population parameters, or population distributions, and testing those statements based on samples taken from the population to see whether the statements are true.

What are the seven steps of testing a hypothesis?
1. State the Null Hypothesis and the Alternate Hypothesis
2. Determine the Appropriate Test Statistic and its Probability Distribution
3. Select the Level of Significance
4. Formulate the Decision Rule
5. Collect the Data, Perform Calculations (calculate the test statistic)
6. Making a Decision
7. Making an Investment Decision

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