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Hypothesis Testing of Variances - F test

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Problem:

5-Dec
Alaska American America West British Continental
7.74% 7.67% -0.89% -2.52% 4.12%

Delta JetBlue Northwest Southwest US Airways
4.45% 3.14% 4.84% 3.53% No Change

Estimate the variance of the percent change in airline stock

6-Dec
Alaska American America West British Continental
5.71% 5.54% 0.90% 1.08% 1.98%

Delta JetBlue Northwest Southwest US Airways
3.80% 1.25% 2.50% 0.74% 3.70%

Estimate the variance of the percent change in airline stock

Test all the null hypothesis that the variance of the change on December 5 is equal to the
variance of the change in December 6 against the alternative hypothesis that the December 5 variance is
greater, using an F test. What economic conclusions might you draw from the test result.

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Please see the attached file for tables and formulas.

Solution:

Null hypothesis: Variances of change on both days are same
...

Solution Summary

Solution describes the steps for calculating variances of changes in different airlines stocks and then hypothesis testing is carried for differences in variances.

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Hypothesis Testing for Variances: F Test

For two samples from what are assumed to be normally distributed populations, the sample size and standard deviations are n1 = 10, s1 = 23.5, n2 =9 and s2=10.4. At the 0.10 level of significance, test the null hypothesis that the population variances are equal. Would your conclusion be different if the test had been conducted at the 0.05 level? At the 0.02 level?

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