Interval-Based Hypothesis Testing and Its Applications to Economics and Finance
This paper presents a brief review of interval-based hypothesis testing, widely used in bio-statistics, medical science, and psychology, namely, tests for minimum-effect, equivalence, and non-inferiority. We present the methods in the contexts of a one-sample <i>t</i>-test and a test for...
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| Format: | Article |
| Language: | English |
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MDPI AG
2019-05-01
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| Series: | Econometrics |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2225-1146/7/2/21 |
| _version_ | 1798024364767051776 |
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| author | Jae H. Kim Andrew P. Robinson |
| author_facet | Jae H. Kim Andrew P. Robinson |
| author_sort | Jae H. Kim |
| collection | DOAJ |
| description | This paper presents a brief review of interval-based hypothesis testing, widely used in bio-statistics, medical science, and psychology, namely, tests for minimum-effect, equivalence, and non-inferiority. We present the methods in the contexts of a one-sample <i>t</i>-test and a test for linear restrictions in a regression. We present applications in testing for market efficiency, validity of asset-pricing models, and persistence of economic time series. We argue that, from the point of view of economics and finance, interval-based hypothesis testing provides more sensible inferential outcomes than those based on point-null hypothesis. We propose that interval-based tests be routinely employed in empirical research in business, as an alternative to point null hypothesis testing, especially in the new era of big data. |
| first_indexed | 2024-04-11T18:01:18Z |
| format | Article |
| id | doaj.art-b4bc2810dc62408cac2e9026dbecc591 |
| institution | Directory Open Access Journal |
| issn | 2225-1146 |
| language | English |
| last_indexed | 2024-04-11T18:01:18Z |
| publishDate | 2019-05-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Econometrics |
| spelling | doaj.art-b4bc2810dc62408cac2e9026dbecc5912022-12-22T04:10:30ZengMDPI AGEconometrics2225-11462019-05-01722110.3390/econometrics7020021econometrics7020021Interval-Based Hypothesis Testing and Its Applications to Economics and FinanceJae H. Kim0Andrew P. Robinson1Department of Economics and Finance, La Trobe University, Bundoora, VIC 3086, AustraliaSchool of Mathematics and Statistics, University of Melbourne, Parkville, VIC 3010, AustraliaThis paper presents a brief review of interval-based hypothesis testing, widely used in bio-statistics, medical science, and psychology, namely, tests for minimum-effect, equivalence, and non-inferiority. We present the methods in the contexts of a one-sample <i>t</i>-test and a test for linear restrictions in a regression. We present applications in testing for market efficiency, validity of asset-pricing models, and persistence of economic time series. We argue that, from the point of view of economics and finance, interval-based hypothesis testing provides more sensible inferential outcomes than those based on point-null hypothesis. We propose that interval-based tests be routinely employed in empirical research in business, as an alternative to point null hypothesis testing, especially in the new era of big data.https://www.mdpi.com/2225-1146/7/2/21equivalenceminimum-effectnon-inferioritypoint-null hypothesis testingzero probability paradox |
| spellingShingle | Jae H. Kim Andrew P. Robinson Interval-Based Hypothesis Testing and Its Applications to Economics and Finance Econometrics equivalence minimum-effect non-inferiority point-null hypothesis testing zero probability paradox |
| title | Interval-Based Hypothesis Testing and Its Applications to Economics and Finance |
| title_full | Interval-Based Hypothesis Testing and Its Applications to Economics and Finance |
| title_fullStr | Interval-Based Hypothesis Testing and Its Applications to Economics and Finance |
| title_full_unstemmed | Interval-Based Hypothesis Testing and Its Applications to Economics and Finance |
| title_short | Interval-Based Hypothesis Testing and Its Applications to Economics and Finance |
| title_sort | interval based hypothesis testing and its applications to economics and finance |
| topic | equivalence minimum-effect non-inferiority point-null hypothesis testing zero probability paradox |
| url | https://www.mdpi.com/2225-1146/7/2/21 |
| work_keys_str_mv | AT jaehkim intervalbasedhypothesistestinganditsapplicationstoeconomicsandfinance AT andrewprobinson intervalbasedhypothesistestinganditsapplicationstoeconomicsandfinance |