Hypothesis Testing in CFA® Level 1 Exam: Common Misconceptions

False Statements Regarding Hypothesis Testing

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Question

Which of the following statements regarding hypothesis testing is false?

Answers

A. The F-statistic is used in multivariate quantitative analysis.

B. More than one of these answers is incorrect.

C. If the null hypothesis is rejected, then it is said the result is "not statistically significant."

D. If the population standard deviation is unknown, then the standard error of the estimate is found by dividing the sample standard deviation by the square root of "n."

E. The power of a test is usually equal to (1 - the probability of a Type II error).

F. In quantitative analysis, the Type I error is defined as the act of incorrectly rejecting the null hypothesis.

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Explanations

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A. B. C. D. E. F.

Remember that when the null hypothesis is rejected, the results of the regression are said to be "statistically significant." In other words, the analyst has enough reason to assume that the results of the analysis are valid at the given level of significance. When the analyst fails to reject the null hypothesis, then the result is said to "not be statistically significant." While this specification may seem excessive, it is nevertheless important. The remaining answers are all correct.

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