Question

If you estimate the beta OLS for stock i is 1.5, the standard error is 0.3. To test the two null hypothesis:β=3.5,β=-1，can you reject these two null hypotheses at 10% significance level with the t_critical = 2.96?

1. A.	β=3.5 cannot be rejected,β=-1 can be rejected
   	B.	β=3.5 can be rejected,β=-1 cannot be rejected
   	C.	β=3.5 can be rejected,β=-1 can be rejected
   	D.	β=3.5 cannot be rejected,β=-1 cannot be rejected

Answer 1

Solution:-

Given that

If you estimate the beta OLS for stock i is 1.5, the standard error is 0.3. To test the two null hypothesis: = 3.5, = -1

can you reject these two null hypotheses at 10% significance level with the t_critical = 2.96?

(1)   

(2)  

(1)

test statistic under is

Given ,  

|t| = 6.667

at 10% level of significance

we can reject the Null hypothesis

at 10% level of significance.

(2)

Test statistic under

t = 8.333

at 10% level of significance.

we can reject Null hypothesis

Ans:

Since for both null hypothesis calculated values of y-statistics are greater than t critical value at 10% level of significance. Therefore

can be rejected & can be rejected.

Hence Option (C) is correct.

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