Hypothesis is a statement about the value of a population parameter developed for the purpose of testing a theory.
Hypothesis testing is the process of assessing the accuracy of a statement about a population on the basis of analysis conducted on a sample. In order to test a hypothesis, we follow the following steps:
Null hypothesis (H0) is the hypothesis that the researcher wants to reject. It should always include the ‘equal to’ condition.
Alternative hypothesis (Ha) is the hypothesis that the researcher wants to prove. If the null hypothesis is rejected, then the alternative hypothesis is considered valid.
If you want to test if the average returns of all stocks in the S&P 500 are greater than 10%.
H0: µ ≤ 10% and Ha: µ > 10%
If you want to test if the average returns of all stocks in the S&P 500 are less than 10%.
H0: µ ≥ 10% and Ha: µ < 10%
If you want to test if the average returns of all stocks in the S&P 500 are not equal to 10%.
H0: µ = 10% and Ha: µ ≠ 10%
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