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We do this by comparing the sample mean and the population mean hypothesized under the null hypothesis and decide if they are **"significantly different"**.

We decide: "The data (and its sample mean) are significantly different than the value of the mean hypothesized under the null hypothesis, at the .01 level of significance." This decision is likely to be wrong (Type I error) 1 time out of 100.

The experimental results don't look different than we expect according to the null hypothesis, but they are, perhaps because the effect isn't very big.

In addition, behavioral finance researchers challenge the efficient markets hypothesis on theoretical grounds by documenting both cognitive biases that drive investors' behavior away from rationality and limits to that prevent others from taking advantage of the cognitive biases (and, by doing so, keeping markets efficient).

Of the studies based on hypothesis testing, only 11 % described the conditions under which the hypotheses would apply, and dominant hypotheses were below competing hypotheses in this regard.

The empirical evidence for the efficient markets hypothesis is somewhat mixed, though the strong-form hypothesis has pretty consistently been refuted. In particular, researchers aim to document ways in which financial markets are inefficient and situations in which asset prices are at least partially predictable.

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For our example, we formally state: The alternative hypothesis (H1) is that prenatal exposure to alcohol **has an effect** on the birth weight for the population of lab rats.

The criterion will let us conclude whether (reject null hypothesis) or not (accept null hypothesis) the treatment (prenatal alcohol) has an effect (on birth weight).

We decide: "The data (and its sample mean) are significantly different than the value of the mean hypothesized under the null hypothesis, at the .001 level of significance." This decision is likely to be wrong (Type I error) 1 time out of 1000.

Put more simply, the weak form of the efficient markets hypothesis implies that an investor can't consistently beat the market with a model that only uses historical prices and returns as inputs, the semi-strong form of the efficient markets hypothesis implies that an investor can't consistently beat the market with a model that incorporates all publicly available information, and the strong form of the efficient markets hypothesis implies that an investor can't consistently beat the market even if his model incorporates private information about an asset.

When we get the data we will calculate Z and then look it up in the Z table to see how unusual the obtained sample's mean is, if the null hypothesis Ho is true.

The intuition behind the efficient markets hypothesis is pretty straightforward- if the market price of a stock or bond was lower than what available information would suggest it should be, investors could (and would) profit (generally via ) by buying the asset. This increase in demand, however, would push up the price of the asset until it was no longer "underpriced." Conversely, if the market price of a stock or bond was higher than what available information would suggest it should be, investors could (and would) profit by selling the asset (either selling the asset outright or short selling an asset that they don't own). In this case, the increase in the supply of the asset would push down the price of the asset until it was no longer "overpriced." In either case, the profit motive of investors in these markets would lead to "correct" pricing of assets and no consistent opportunities for excess profit left on the table.

Here's what happens:

The P value is way below .00001, so we reject the null hypothesis that there is an unrestrictive selection process for admitting students to UNC.

The Special Theory of Relativity (SR) is a theory invented in 1905 by Einstein toexplain several experimental results. Since then it has been found to explain a widerange of experimental results. SR is *not* a mathematical game or just ahypothesis. SR is a physical theory that has been well tested many times.

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