# Quant reading 12, hypothesis testing

Is there any trick to learning this stuff? I started to get somewhat lost towards the end of reading 11 and now Im kinda muddling through.

The trick is . . . hard work.

What’s vexing you about hypothesis testing?

Probably the vocabulary that I’m just not familiar with. Perhaps I should write out some notecards and memorize the lingo…

Can’t hurt.

One of my least liked L1 topics but actually easy points on the exam. Go and look at some exam questions to get an idea of the expectations then come back to it.

When looking at a null and alternative hypothesis, what do you look at or look for to determine if it is a one or two tail test? Am I correct in stating that two test hypothesis statements contain ≠ in the null and one tail statements do not?

You are correct.

One-tail tests have either ≤ or else ≥ in the null hypothesis.

If you understand the reason, you can bring down the memorizing. Let’s take this for example: you speak of distance. You are searching for a vacation home away from the existing residence. Any direction is fine, no preferences. Do understand, You set the Null condition as something that you wouldn’t want. Equal to zero is the null you would set, the reason being: you don’t want it to be near. Now when you are successfully finding a pleasant house that is away, - you happily reject the null. Now let’s speak of returns, you can be happy only if they are positive. Null condition (set as something that you wouldn’t want) is thus set as returns being negative or zero. Thus null will have a less than equal to sign! For the alternate hypothesis (something that you wanted) to be true, in the first instance of house - the alternate should be far in any of the tails as any direction is okay. In case of returns, alternate should only be in positive right region.