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Econometrics - Coggle Diagram
Econometrics
Hypothesis testing
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Central Limit Theory (CLT) Normalityofε isastrongassumption. Instead,wecouldrelaxtheassumptiontoε ∼i.i.d.(0,σ2), in which i.i.d. refers to identically and independently distributed. This means that each error is completely unrelated to previous or future errors (independence) and comes from the same distribution.
t-test
if 
the hypothesis is that x axis has no effect on y axis
Then we use
significance level
5% significance level
p value
In general, Pr(A|B) ̸ = Pr(B|A). For example, the probability of finding a job after completing a university degree majoring in finance (Pr(having a job| f inance degree) is very large (close to one), and much larger than Pr(finance degree| having a job). There are many people with jobs without a finance degree.
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Alfa
Whenevaluating a portfolio, mutual fund, or trading strategy, we can regress its excess returns on excess market returns and test whether α is zero. Rejecting the null implies that the strategy yields abnormal returns. Searching for a trading strategy that delivers positive abnormal returns is often referred to as "Seeking Alpha".
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What is econometrics
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Linear model
Exilon is "noise"
Exilon = Expectation of error is zero (0): Some are over and some are under, therefore mean is 0
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