ok, so an exmaple is that we are testing if hedge funds returns are explained by different asset classes (Small Cap Stocks (t stat of 12.6), Bonds (t-stat of 1.4) , and Emerging Markets (t-stat of 5.9).
When we do a t-test, and say tha the Null hypothesis = 0, vs. the alternative does not = 0.
When we fail to reject the null hypothesis is 0, that does mean that the asset class does not have an affect on hedge fund returns?
So, we get a critical t-value of 2 (95% confidence level = 5% signficant level/alpha. )
THe P value from bonds of 0.137. SInce .137 is much greater than .05, we fail to reject the null hypothesis. (if p value is greater than signficange level, we fail to reject the null, if the p value is less than the signif. levle, we reject the null. So we conclude that Hedge fund returns are not influenced by bonds.
Basically, we want to reject the null hypothesis, which means Hedge funds are influenced by that asset class.
Please let me know if this makes sense or if you need more data. THANK YOU!
I presume that we’re testing to see whether the slope coefficients are zero or not.
Yes: if the slope coefficient were zero, then that asset class would not affect hedge fund returns. If we do not reject the null hypothesis that the slope coefficient is zero, then we cannot rule out that the asset class has no effect on hedge fund returns.
More accurately, we conclude that there is not enough evidence to say that hedge fund returns _ are _ influenced by bonds.