Skip to content

CFA Level I · CFA Level I Exam · Estimation and Hypothesis Testing

An analyst compares the mean returns of the same 40 stocks in two consecutive years to see whether average return changed. Because each stock appears in both samples, the most appropriate test is a:

A paired comparisons test on the mean of the differences is most appropriate. The same 40 stocks appear in both years, so the samples are dependent, and testing each stock's return change accounts for that dependence, unlike an independent two-sample t-test.

  1. Apaired comparisons test using the mean of the differencesCorrect
  2. Bchi-square test of a single variance
  3. Ctwo-sample t-test assuming independent samples

Explanation

The samples are dependent because the same stocks appear in both years, so differences are computed per stock and a t-test on the mean difference is used. Independent-sample tests ignore the dependence, and the chi-square test addresses variance, not means.

Did you get it right without looking?

One question tells you little. A timed set on Estimation and Hypothesis Testing shows your real accuracy, how long you take and where you lose marks.

Practise Estimation and Hypothesis TestingFree diagnostic mock

More Estimation and Hypothesis Testing questions