Log in Sign Up. Save Word. Definition of null hypothesis. Examples of null hypothesis in a Sentence Recent Examples on the Web Ruling out the null hypothesis , however, can be an incredibly powerful achievement. First Known Use of null hypothesis , in the meaning defined above.
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Get Word of the Day daily email! Test Your Vocabulary. Test your vocabulary with our question quiz! A daily challenge for crossword fanatics. Love words? For the purposes of determining whether to reject the null hypothesis, the null hypothesis abbreviated H 0 is assumed, for the sake of argument, to be true.
Then the likely range of possible values of the calculated statistic e. Then, if the sample average is outside of this range, the null hypothesis is rejected. An important point to note is that we are testing the null hypothesis because there is an element of doubt about its validity. Whatever information that is against the stated null hypothesis is captured in the alternative hypothesis H 1.
For the above examples, the alternative hypothesis would be:. In other words, the alternative hypothesis is a direct contradiction of the null hypothesis.
As an example related to financial markets, assume Alice sees that her investment strategy produces higher average returns than simply buying and holding a stock.
The null hypothesis states that there is no difference between the two average returns, and Alice is inclined to believe this until she can conclude contradictory results. Refuting the null hypothesis would require showing statistical significance, which can be found using a variety of tests. The alternative hypothesis would state that the investment strategy has a higher average return than a traditional buy-and-hold strategy. One tool that can be used to determine the statistical significance of the results is the p-value.
A p-value that is less than or equal to 0. If Alice conducts one of these tests, such as a test using the normal model, resulting in a significant difference between her returns and the buy-and-hold returns the p-value is less than or equal to 0. Corporate Finance Institute. Trading Basic Education. Advanced Technical Analysis Concepts. Financial Ratios. Fund Trading. Actively scan device characteristics for identification.
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What Is a Null Hypothesis? Key Takeaways A null hypothesis is a type of conjecture used in statistics that proposes that there is no difference between certain characteristics of a population or data-generating process.
The alternative hypothesis proposes that there is a difference. Hypothesis testing provides a method to reject a null hypothesis within a certain confidence level.
Null hypotheses cannot be proven, though. Important Analysts look to reject the null hypothesis to rule out chance alone as an explanation for the phenomena of interest.
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