# Hypotheis Testing of stock return

0 votes
An analyst wants to test whether the standard deviation of return from pharmaceutical stocks is

lower than 0.2. For this purpose, he obtains the following data from a sample of 30

pharmaceutical stocks. Mean return from pharmaceutical stocks = 8%. Standard deviation of

return from pharmaceutical stocks = 12%. Mean return from the market = 12%. Standard

deviation of return from the market = 16%. Based on this information, we can say that at a
asked Feb 1, 2016

## 1 Answer

0 votes

First thing first. This question is related to hypothesis of variance .We will use chi square test to verify this claim

Ha: Vo < (0.2)

H0: V0>= (0.2)

. Its a left side test .at 0.005(.5%) significance level with 29 Degree of Freedom(we will look for value corresponding to 99.5% against 29 ,   the critical value is  around 15

our test Stats is = (n-1) x S2 / V02 = 29 x .12x.12/(0.2 x0.2)=  10.44. our test stats is  below critical level .so we will reject the null and accept that  SD is less than 0.2

answered Feb 1, 2016 by (390 points)