medium · Quantitative Finance prob-stats
A strategy delivers a sample mean daily return of 0.06% with a sample daily volatility of 1.5% over n = 256 trading days. Test the null hypothesis H_0: μ = 0 at the 5% significance level.
- Fail to reject H_0; the record is indistinguishable from luck.
- Reject H_0; the volatility is too high for the mean.
- Fail to reject H_0; the sample size is too small.
- Reject H_0; the strategy shows significant skill.
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