Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 667: The choice between two hypothesis tests

Erik Ruist ()
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Erik Ruist: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: Most standard hypothesis tests have high power only against a limited space of alternative hypotheses. With the advent of new tests for the same hypothesis, claimed to have higher power for some alternatives, but lower for other, the practitioner has to make a choice between alternative tests. This paper recommends the use of a pre-test to guide this choice, or the combined use of both tests.

Keywords: sign test; t test; two-dimensional criterion

JEL-codes: C12

13 pages, June 14, 2007

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