Hypothesis Testing and Interpretation in Statistics

STATISTICS
STUDENT NAME/ID
[Pick the date]

PART A: CALCULATIONS
TASK B
(1) The returns on BA and GD stock along with the index have been computed in line with the
formula provided using the provided data.
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The objective is to test if the returns of the two stocks are normally distributed or not which
would require Jarque Bera test. The requisite definition of the hypothesis is carried out below.
H0: The distribution of the returns of the given stock does not deviate significantly from
normality.
H1: The distribution of the returns of the given stock does deviate significantly from normality.
For the given test, the significance level has been assumed as 5%.
The relevant test statistics is JB statistic which can be computed on the basis of the formula
highlighted as follows.
By deploying the formula above and the returns of the two stocks, the computation of JB statistic
is shown as follows.
For each of the two stocks, the corresponding JB statistic seems to have exceeded the relevant
critical value of JB parameter at the given significance level. This would imply that the rejection
of H0 is confirmed. This would instead lead to acceptance of H1. The conclusion derived would
be that the distribution of returns for neither of the stocks can be considered as normal.
(2) The hypothesis test above provided evidence of the non-normality of the stock returns.
Owing to this, the GD stock returns distribution would be taken as student t in this case. The
relevant hypotheses to aid this test are indicated as follows.
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