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Lecture 3 - Testing Hypothesis
Lecture 3 - Testing Hypothesis
Hypothesis Test
1
Testing hypothesis in Statistics - Revise
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Statistical decision
Do not reject
Reject H0
H0
True state of the null hypothesis
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• α : significance level
Highest probability accepted to get mistake type I
4
Sampling distributions of the OLS
estimators
Assumption 7: The population error u is independent of
the explanatory variables X and normally distributed:
𝑢~𝑁(0, 2 )
𝑗 ~N(𝑗 , var 𝑗 )
5
Sampling distributions of the OLS
estimators
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Testing hypothesis about the regression parameter
• 3 kinds of hypothesis test *
H 0 : j j
- 2-sided:
H1 : j j
*
H 0 : j *j
- right-sided:
1 j
H : *
j
H 0 : j *j
H1 : j j
*
- left-sided:
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3 methods to test hypothesis
Critical value
p- value
Confidence interval
Necessary statistics
• T statistics/ T ratio
• Significance level
• Confidence interval (1 )
• Critical value: c
8
1. Critical value method
• Step 1: Calculate ˆ j * j
T
se( ˆ j )
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Rules of rejection
T0 c
* *
Right - sided j j j j
T0 c
* *
Left -sided j j j j
10
2. Confidence Interval Method
P( c T c ) 1
• The probability that the following random interval
contains the population βj is (1 )
j
c se( )
j
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right-side confidence interval:
( 1
c se( ), )
1
(, 1
c se( )
1
12
reject H0.
we reject H0.
we reject H0.
j
*
j
j
c
s
e
(
)
Rejection rules for hypothesis H0
• 2-sided test: if does not lie within this interval, we
*
[ ˆ j c se( ˆ j ), ]
• Left-sided test: if *j does not lie within this interval,
[, ˆ j c se( ˆ j )]
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3. p-value method
• Step 1: Calculate ˆ j *j
t0
se( ˆ j )
• Step 2: Calculate p-value = P (|T| > t0), of which T
is a random variable that has t-student distribution
with (n-k-1) degree of freedom. t0 is a specific
value of T.
H0 : βk-q+1 =…= βk = 0
H1 : at least one βj ≠ 0
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Steps
• Step 1 : Calculate SSRUR, the sum of squared residuals
from the unrestricted model
• Step 2 : Calculate SSRR, the sum of squared residuals
from the restricted model
• Step 3 : F-statistic or F ratio :
( SSRr SSRur ) / q ( Rur2 Rr2 ) / q
F Fq ,n k 1 F Fq ,n k 1
SSRur / ( n k 1) (1 Rur2 ) / ( n k 1)
if F > cα , reject H0
H0 : β1 = β2 …= βk = 0
H1 : at least βj ≠ 0
• H0 : R2 = 0 ↔ H0 : β1 = β2 =…= βk = 0
• H1 : R2 ≠ 0 ↔ H1 : at least one βi ≠ 0
( R2 ) / k
F Fq ,n k 1
(1 R 2 ) / ( n k 1)
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6. Testing for the fitness of the model
H0 : R2 = 0 ↔ H0 : β1 = β2 =…= βk = 0
H1 : R2 ≠ 0 ↔ H1 : has at least one βj ≠ 0