Hi all -
looking at page 620 in Volume 1 example 1. Maybe I’ve just been looking at this too long - but when they say “note that 10 percent is a relatively high probability of rejecting the hypothesis of a 1.10 percent population mean monthly return when it is true” are they saying this is an anomaly?
Meaning, even though we don’t reject the null hypothesis, there was a high probability of rejecting it?
They’re saying you have a 10% chance of making a Type I error (reject the null when it is actually true). In life, nothing is known for certain; statistics accounts for this. We can sample a population and conduct a statistical test, but there is a chance that our conclusion is wrong (for various reasons this could occur). This is the point of their statement… Again, it’s a 10% chance that, based on your sample, you conlcude the null is not true, but in reality, the null is true.
10% chance is refering to 10% significance level, which is the probability of making a type 1 error (rejecting H0 when it is true).