A study of the trading skills of institutional investors-the men and women who t

Question

A study of the trading skills of institutional investors-the men and women who trade stocks for pension funds and similar institutional holdings-was carried out to see if these people were better or worse at trading stocks of three categories: Growth Stocks, Value Stocks, and Past Losers. The total sample size was n= 3,816 stocks and the computed ,Fstatistic value was 1.17.

a. State the null and alternative hypotheses.

b. What are the degrees of freedom for error?

c. What are the degrees of freedom for "factor"?

d. What are the degrees of freedom for "total"?

e. Carry out the test and state your conclusions, including an estimated p-value.

f. Write a short report to the management of a pension fund describing your findings and explaining whether or not there is statistical evidence that institutional traders are better or worse at trading stocks in one of the three groups of stock under study as compared with those in the other two.

Explanation / Answer

a) H0: µgrowth = µvalue = µlosers
Ha: not all µ are equal

b) df(error) = N - k = total sample size - number of levels = 3816 - 3 = 3813

c) df(factor) = k-1 = 2

d) df(total) = N - 1 = 3816 - 1 = 3815

e) F = 1.17, F0.05;2,3813 = p-value = .310, The result is not significant at p < .05

f) There is no sufficient statistical evidence to reject the null hypothesis that means of all 3 groups are equal and suggest that the institutional traders are better or worse at trading stocks in on of the 3 groups of stock.

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