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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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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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Please see the attached file for tables and formulas.

Solution:

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

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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