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Trading skills of institutional investors. Managers of
Chapter 7, Problem 36E(choose chapter or problem)
Problem 36E
Trading skills of institutional investors. Managers of stock portfolios make decisions as to what stocks to buy and sell in a given quarter. The trading skills of these institutional investors were quantified and analyzed in The Journal of Finance (April 2011). The study focused on “round-trip” trades, i.e., trades in which the same stock was both bought and sold in the same quarter. Consider a random sample of 200 round-trip trades made by institutional investors.
Suppose the sample mean rate of return is 2.95% and the sample standard deviation is 8.82%. If the true mean rate of return of round-trip trades is positive, then the population of institutional investors is considered to have performed successfully.
a. Specify the null and alternative hypotheses for determining whether the population of institutional investors performed successfully.
b. Find the rejection region for the test using
c. Interpret the value of a in the words of the problem.
d. A Minitab printout of the analysis is shown below. Locate the test statistic and p-value on the printout. [Note: For large samples, z ≈ t.]
e. Give the appropriate conclusion in the words of the problem.
Questions & Answers
QUESTION:
Problem 36E
Trading skills of institutional investors. Managers of stock portfolios make decisions as to what stocks to buy and sell in a given quarter. The trading skills of these institutional investors were quantified and analyzed in The Journal of Finance (April 2011). The study focused on “round-trip” trades, i.e., trades in which the same stock was both bought and sold in the same quarter. Consider a random sample of 200 round-trip trades made by institutional investors.
Suppose the sample mean rate of return is 2.95% and the sample standard deviation is 8.82%. If the true mean rate of return of round-trip trades is positive, then the population of institutional investors is considered to have performed successfully.
a. Specify the null and alternative hypotheses for determining whether the population of institutional investors performed successfully.
b. Find the rejection region for the test using
c. Interpret the value of a in the words of the problem.
d. A Minitab printout of the analysis is shown below. Locate the test statistic and p-value on the printout. [Note: For large samples, z ≈ t.]
e. Give the appropriate conclusion in the words of the problem.
ANSWER:
Solution :
Step 1 of 5:
Given the sample mean rate of returns is 2.95% and the sample standard deviation is 8.82%.
Our goal is:
a). We need specify the null and alternative hypothesis for determining the population of institutional investors performed.
b). We need to find the rejection region for the test using .
c). We need to interpret the value of in the words of the problem.
d). We need to locate the test statistic and p-value on the printout.
e). We need to give the appropriate conclusion in the words of the problem.
a). Now we have to specify the null and alternative hypothesis for determining the population of institutional investors performed.
The true mean rate of returns of round-trip trades is .
Now we have to determine if the true mean rate of return of round-trip- trades is positive.
Then the null and alternative hypothesis are
and