QUANTITIVE METHODS

Finance Junkie
Posts: 166
Joined: Mon Oct 06, 2014 7:36 am

QUANTITIVE METHODS

T-DISTRIBUTION
As degree of freedom increases in t distribution tails becomes thinner and greater percentage away from center of distributions.
Thickness of tails relative to those of Z distribution is important in hypothesis testing because thicker tails means more observation away from center of distribution
Hence hypothesis testing using t distribution makes it more difficult to reject null hypothesis relative to hypothesis testing using z distribution
MY QUESTION
AS WE KNOW WHEN TAILS BECOMES THINNER IN T DISTRIBUTION IT WILL HAVE GREATER PERCENTAGE AWAY FROM CENTER OF DISTRIBUTION THAN WHAT DOES THIS SENTENCE MEANS
Thickness of tails relative to those of Z distribution is important in hypothesis testing because thicker tails means more observation away from center of distribution
Hence hypothesis testing using t distribution makes it more difficult to reject null hypothesis relative to hypothesis testing using z distribution
SOUCRE OF QUETION
SCHWESER BOOK 1
QUANTITATIVE METHOD
PAge 287

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

QUANTITIVE METHODS

Hi, answer to your question is that t distribution uses degrees of freedom and is appropriate for small samples and from unknown variance therefore it becomes difficult to reject null hypothesis in case of small sample( t distribution) as compared to large sample (z distribution).