Quant: Hypotessis Testing

[AnuragSeth]

Hi David

I usually get confused as to when to use a 1 tail test or a two tail test while checking the critical value. Also many a times I get confused between when to use which test. Could you please help me out on this.

Is there a easy way to determine which test to use when and which tail?

Anurag

 

[BlackSwan]

You should be able to know if you need to use a 1 tail or a two tail based on how the null hypothesis is set up.

Ho: X = 0
and Ha: X != 0 (!= is not equal to)

In your alternative hypothesis X could be greater than zero or less than zero (two sides of zero) and it would satisfy X not being equal to zero; so it is a two tail test.

Ho: X <= 0
Ha: X > 0

Here your alternative hypothesis is X is greater than zero (only one side) so it is a one tail test

So if there are "<" or ">"
signs in the setup of the Hypothesis then it will be a one tail test. If it is just using "=" then it will be a two tail

 

[AnuragSeth]

Hi Black Swan.. thanks for this....