NORMALITY TEST

Jarque Bera Test is used to test for normality. It is a type of a Lagrange Multiplier test. Given

continuous data, the test for normality is always carried out to decide about the measures of

central tendency and statistical methods to be applied. If the data follows a normal

distribution, parametric tests are used to make a comparison of the groups.

Most statistical tests like the F test and T-test assume a normal distribution therefore before

the tests are carried out, the Jarque Bera test is run to confirm if the data follows a normal

distribution. Jarque Bera test is preferred over other tests such the Shapiro wilk tests since it

can test normality given large data sets.

When testing for normality using Jarque Bera, the p value is used to determine whether a data

set is normally distributed. The skewness and kurtosis from the descriptive statistics are also

used. For a data set to be normally distributed, the returns should give a skewness of zero and

a kurtosis of three.

RUNNING THE TEST

The Jarque Bera test formula is

( )
2
s2 ( k −3 )
J . B=n +
6 24

Where

n=number of observations

s=sample skewness coefficient

k=kurtosis coefficient

sample skewness formula

N
μ3=∑ ¿ ¿ ¿
i=1

Where
N = is the number of variables

xi = random variable

x̄ = mean of the distribution

σ = standard deviation

Sample Kurtosis
N

∑ ¿¿ ¿
i=1

A large Jarque Bera value indicates that the error terms do not follow a normal distribution.

However, if the value is zero or close to zero, then the error terms follow a normal

distribution.

Hypothesis

H0: The data is normally distributed

H1: The data does not come from a normal distribution

When the p-value is greater than α which is 0.05, we fail to reject the null hypothesis

implying that the return series follows a normal distribution.

Analysis

Jarque Bera Test

Data (Squared Residuals)

X-squared 48969
df 2
p-value 2.2e^-16

From the output, the p-value is less than α which is 0.05 and hence the null hypothesis

rejected. Therefore, we conclude that the return series of the oil prices do not follow a normal

distribution since normality does not hold for real data.

From the basis statistics output, the skewness is -1.520971 and the kurtosis is 8.608617 which

implies that the return series of the oil prices is not normally distributed. The value of
skewness is -1.520971 which is not equal to 0 and therefore the returns of oil prices are

asymmetric. Since the skewness is negative, it implies that the series is skewed to the left.

The histogram also shows that the series is skewed to the left.