What Is the First Step in the Process of Testing

question 5

Multiple Choice

What is the first step in the process of testing a hypothesis in a quantitative study?

• A) Set the alpha level
• B) Compute the sample statistic
• C) Identify a null and alternative hypothesis
• D) Collect data

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Definitions:

Fama and French

Two renowned economists who developed the three-factor model explaining stock returns on the basis of market risk, size, and value.

Dividend-Discount Model

A method for determining the value of a stock by using predicted dividends and discounting them back to present value.

Mehra and Prescott

Two economists known for their work in the economics field, particularly for the Equity Premium Puzzle which questions why stocks have historically outperformed safer assets by such a wide margin.

Average Excess Returns

The average return on an investment above the benchmark or risk-free rate.