Lecture 3

Hypothesis Test

Đinh Thị Thanh Bình, PhD

Faculty of International Economics, FTU

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Testing hypothesis in Statistics - Revise

• The average productivity of rice planting = 9 tons/ha

H0: µ = 9
H1: µ ≠ 9
In which
• µ: the average productivity in the population
• H0 : null hypothesis
• H1 : alternative hypothesis

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 Statistical decision

Do not reject
Reject H0
H0
True state of the null hypothesis

Correct Type II error

H0 False

Type I error Correct

H0 True

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• α : significance level
Highest probability accepted to get mistake type I

P(mistake type I) = P(reject H0/H0 right) ≤ α

• If there is evidence to reject H0, we say: reject H0,

accept H1

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 Sampling distributions of the OLS
estimators
Assumption 7: The population error u is independent of
the explanatory variables X and normally distributed:
𝑢~𝑁(0, 2 )

Theorm 4.1: Normal sampling distribution

𝑗 ~N(𝑗 , var 𝑗 )

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 Sampling distributions of the OLS
estimators

Theorem 4.2: (t distribution for the standardized

estimators)
Under assumptions,
(    *) / se(  ) t n  k 1
j j j

k is the number of independent variables

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Testing hypothesis about the regression parameter
• 3 kinds of hypothesis test *
 H 0 :  j   j
- 2-sided: 
 H1 :  j   j
*

 H 0 :  j   *j
- right-sided: 
 1 j
H :    *
j

 H 0 :  j   *j

 H1 :  j   j
*
- left-sided:

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3 methods to test hypothesis
 Critical value
 p- value
 Confidence interval

Necessary statistics

• T statistics/ T ratio
• Significance level 
• Confidence interval (1   )
• Critical value: c

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 1. Critical value method
• Step 1: Calculate ˆ j   * j
T 
se( ˆ j )

• Step 2: Check the Table t-student for the critical value

• Step 3: Compare T with the critical value

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 Rules of rejection

Hypothesis H0 H1 Rejection area

of H0
   #
* *
2 - sided j j j j
T  c

    T0  c
* *
Right - sided j j j j

    T0  c
* *

Left -sided j j j j

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 2. Confidence Interval Method

2-sided confidence interval

•Define c  so that:

P( c  T  c )  1  
• The probability that the following random interval
contains the population βj is (1   )

 j
c se(  )
j

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right-side confidence interval:

( 1
 c se(  ), )
1

left-side confidence interval

(,  1
 c se(  )
1

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 reject H0.

we reject H0.

we reject H0.

j

 *
j
j
c
s
e
(
)
Rejection rules for hypothesis H0
• 2-sided test: if  does not lie within this interval, we
*

• Right-sided test: if j does not lie within this interval,

[ ˆ j  c se( ˆ j ), ]
• Left-sided test: if  *j does not lie within this interval,

[, ˆ j  c se( ˆ j )]
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 3. p-value method

• Step 1: Calculate ˆ j   *j
t0 
se( ˆ j )
• Step 2: Calculate p-value = P (|T| > t0), of which T
is a random variable that has t-student distribution
with (n-k-1) degree of freedom. t0 is a specific
value of T.

• Step 3: with a given significance level α, rule of

rejection is:
• 2-sided test: p-value < α  reject H0
• one-sided test: p-value/2 < α  reject H0
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 4. Testing Multiple Linear Restrictions

• (UR) : Y   0  1 X 1  ...   k X k  u (Unrestricted model)

• (R) : Y   0  1 X 1  ...   k  q X k  q  v (Restricted model)

 q independent variable excluded from the model

H0 : βk-q+1 =…= βk = 0
H1 : at least one βj ≠ 0

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 Steps
• Step 1 : Calculate SSRUR, the sum of squared residuals
from the unrestricted model
• Step 2 : Calculate SSRR, the sum of squared residuals
from the restricted model
• Step 3 : F-statistic or F ratio :
( SSRr  SSRur ) / q ( Rur2  Rr2 ) / q
F Fq ,n k 1 F Fq ,n k 1
SSRur / ( n  k  1) (1  Rur2 ) / ( n  k  1)

if F > cα , reject H0

F-test or Wald test

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 5. Testing overall significance of a regression

H0 : β1 = β2 …= βk = 0
H1 : at least βj ≠ 0

• H0 : R2 = 0 ↔ H0 : β1 = β2 =…= βk = 0
• H1 : R2 ≠ 0 ↔ H1 : at least one βi ≠ 0

( R2 ) / k
F Fq ,n k 1
(1  R 2 ) / ( n  k  1)

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 6. Testing for the fitness of the model
H0 : R2 = 0 ↔ H0 : β1 = β2 =…= βk = 0
H1 : R2 ≠ 0 ↔ H1 : has at least one βj ≠ 0

• Independent variables don’t simultaneously affect the

dependent variable  Sample regression function can’t
explain for the variation of dependent variable  SRF is
not suitable.
 Same as: F tests for all regression parameters

• Note: Hypothesis H0: β1 = 0 and H0: β2 = 0 (separate

testing) is not the same as H0: β1 = β2 = 0 (simultaneous
testing)
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