CFA Level I · CFA Level I Exam · Estimation and Hypothesis Testing
Compared with a parametric test that is valid for the same data, a nonparametric test most likely has:
A nonparametric test most likely has lower power when the parametric assumptions hold. It often relies only on ranks or signs and so discards information that the parametric test uses. Its advantage is robustness when assumptions are violated, not greater power under valid assumptions.
- Ahigher power because it uses fewer assumptions
- Blower power when the parametric assumptions actually holdCorrect
- Cidentical power in all cases
Explanation
When the distributional assumptions of a parametric test hold, it uses the full information in the data, while nonparametric tests often use only ranks or signs and so discard information. This makes nonparametric tests less powerful in that situation, though they are more robust when assumptions fail.
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.
More Estimation and Hypothesis Testing questions
- Holding the sample and the test statistic constant, a researcher lowers the significance level of a test from 5% to 1%. The change will most…
- A jackknife procedure is applied to a sample of 20 observations to estimate the variability of a statistic. The number of resampled data set…
- An analyst wants to raise the confidence level of an interval for a population mean from 90% to 99% without changing the sample. The interva…
- An analyst wants to estimate the standard error of the sample median of monthly fund returns, for which no simple closed-form formula is con…
- Compared with a sample of 50 observations, drawing a sample of 200 observations from the same population will most likely cause the standard…
- An analyst tests whether a strategy's median daily excess return is positive using a sign test on 20 nonzero observations, of which 15 are p…