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    Quantitative Tools for Management [Stats II] - Umass Amherst - Textbook: A Course in Business Statistics [4th Edition] by David Groebner, Patrick Shannon, Phillip Fry, & Kent Smith

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    Adam Pieniazek 9 52

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    Quantitative Tools for Management [Stats II] - Umass Amherst - Textbook: A Course in Business Statistics [4th Edition] by David Groebner, Patrick Shannon, Phillip Fry, & Kent Smith

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    Quantitative Tools for Management [Stats II] - Umass Amherst - Textbook: A Course in Business Statistics [4th Edition] by David Groebner, Patrick Shannon, Phillip Fry, & Kent Smith

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    143 views2 pages

    Adam Pieniazek 9 52

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    Quantitative Tools for Management [Stats II] - Umass Amherst - Textbook: A Course in Business Statistics [4th Edition] by David Groebner, Patrick Shannon, Phillip Fry, & Kent Smith

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    Adam Pieniazek

    Exercise 9.52

    Given:

    O11=14 O12 =16 O13 =12


    O 21=6 O 22=8 O23 =6
    O31 =16 O 32=14 O 33 =8
    n=100

    α = .05

    Price Change Previous Day


    Up No Change Down Total
    Up 14 16 12 42
    Price
    Change No 6 8 6 20
    Today Change
    Down 16 14 8 38
    Total 36 38 26 100

    The hypothesis test is formed as:

    H O =Daily change in stock prices is independent of previous day's change


    H A=Daily change in stock prices is not independent of previous day's change

    Next we find the critical chi squared value for a significance level of .05.

    The degrees of freedom is found as follows:

    df =r −1c−1
    df =3−13−1
    df = 2 2
    df =4
    For a significance level of .05, with 4 degrees of freedom the critical chi squared value is 9.4877.

    The decision rule is:

    If χ 2χ α2, donot reject the null hypothesis , otherwise reject the null hypothesis

    Plugging in our critical chi squared value:

    If χ 2χ.052 =9.4877

    If χ 29.4877, do not reject the null hypothesis , otherwise reject the null hypothesis
    Before continuing we need to calculate our expected values:

    36∗20 38∗20 26∗20


    e 11= =15.12 e 12 = =15.96 e 13 = =10.92
    100 100 100

    36∗20 38∗20 26∗20


    e 21 = =7.2 e 22 = =7.6 e 23= =5.2
    100 100 100

    36∗38 38∗38 26∗38


    e 31= =13.68 e 32 = =14.44 e 33= =9.88
    100 100 100
    Now we can calculate the test statistic:
    r c
    Oij −e ij 2
    χ 2=∑ ∑
    i =1 j=1 eij

    14−15.122 16−15.962 12−10.922 6−7.22


    χ 2=   
    15.12 15.96 10.92 7.2
    2 2 2 2
    8−7.6 6−5.2 16−13.68 14−14.44 8−9.882
        
    7.6 5.2 13.68 14.44 9.88
    2
    χ =13.7728

    As χ2 = 13.7728  9.4877 , we reject the null hypothesis. There is insufficient evidence to state that
    the daily change in a stock's price is independent of the change in stock price of the previous day.

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