STAT 166: STATISTICS FOR SOCIAL SCIENCES Exercise: Test of Hypothesis on k Populations

1. One-way ANOVA The financial structure of a firm refers to the way the firms assets are divided by equity and debt, and the financial leverage refers to the percentage of assets financed by debt. An economist claims that financial leverage can be used to increase the rate of return on equity, i.e., stockholders can receive higher returns on equity with the same amount of investment by the use of financial leverage. The following data show the rates of return on equity using 4 levels of financial leverage for 24 randomly selected firms. Financial Leverage (no debt) 2.1 5.6 3 7.8 5.2 2.6 Low 6.2 4 8.4 2.8 4.2 5 Medium 9.6 8 5.5 12.6 7 7.8 High 10.3 6.9 7.8 5.8 7.2 12

a. Identify the following: i. Grouping variable : financial leverage ii. Number of groups to be compared (k): four (no debt, low, medium, high) iii. Total number of observations (n) : 24 b. Are the assumptions satisfied? For test of Normality using STATA: by leverage: swilk rates leverage = high
Shapiro-Wilk W test for normal data Variable | Obs W V z Prob>z -------------+------------------------------------------------rates | 6 0.91170 1.094 0.132 0.44766 > =0.05 --------------------------------------------------------------leverage = low Shapiro-Wilk W test for normal data Variable | Obs W V z Prob>z -------------+------------------------------------------------rates | 6 0.94716 0.654 -0.575 0.71725 > =0.05 --------------------------------------------------------------leverage = medium Shapiro-Wilk W test for normal data Variable | Obs W V z Prob>z -------------+------------------------------------------------rates | 6 0.94178 0.721 -0.450 0.67361 > =0.05 --------------------------------------------------------------leverage = no_debt Shapiro-Wilk W test for normal data Variable | Obs W V z Prob>z -------------+------------------------------------------------rates | 6 0.91600 1.040 0.058 0.47703 > =0.05

Since all p-values are greater than , hence Each group follows Normal distribution.

STAT166 First Semester 2012-2013 JCYnion

STAT 166: STATISTICS FOR SOCIAL SCIENCES Exercise: Test of Hypothesis on k Populations
Equality of variances Ho: Variances are equal. Ha: at least one variance is different Test Procedure/statistic: Levenes test/Fc Decision rule: Reject Ho if p-value < , Otherwise fail to reject Ho. Computation: Pr>F= 0.9306 Decision: Since pvalue=0.9306> =0.05, we fail to reject H0. Conclusion: Variances are equal. ***Since assumption for normality and equality of variances are satisfied, we will proceed with parametric test. c. Compute for the total and variance for each group. Identify the number of samples for each group. No debt Low Medium High Total Ti

( )

26.3
i

30.6 3.884 6

50.5 5.993667 6

50.0 5.470667 6

Variance s 2

( )
( )

4.825667 6

Number of observation n i

d. Compute for the Grand Total (GT) by adding all the observations.

GT = 2.1+ 5.6 + ... + 7.2 +12 = 157.4

e. Compute for the Correction Factor (CF).
2 2

(GT) = (157.4) CF =
n 24
f. Compute for the Between group Sum of Squares (BSS).
k

= 1032.281667

# 26.32 30.62 50.52 50.02 & Ti2 BSS = CF = % + + + ( 1032.281667=80.76333 6 6 6 ' $ 6 i=1 n i
g. Compute for the Within group Sum of Squares (WSS).

WSS = ni 1 si2 = 5 * 4.825667 + 5 *3.884 + 5 *5.993667 + 5 *5.470667 = 100.87

h. Compute the Total Sum of Square (TSS) by adding BSS and WSS.
i =1

()

()

()

()

TSS=BSS+WSS = 80.76333+100.87 = 181.63333

i. Construct the partial ANOVA table. Identify the degrees of freedom (df). Compute for Mean Square (MS)=SS/df. Sources of variation (SV) df SS MS Fc=MSB/MSW Ftab Between groups 3 80.76333 26.92111 5.33778328541687 F0.05 (3, 20)=3.098 Within Groups 20 100.87000 5.04350 *** for f-tabular value using MS Excel, syntax: =finv(,df1,df2) Total 23 181.63333

STAT166 First Semester 2012-2013 JCYnion

STAT 166: STATISTICS FOR SOCIAL SCIENCES Exercise: Test of Hypothesis on k Populations
H o: 1 = 2 = 3 = 4 Ha: At least one mean rate is different from the rest. Test Procedure/statistic: F - test/Fc Decision rule: Reject Ho if Fc > F0.05 (4-1, 24-4)=3.098 or p-value < , Otherwise fail to reject Ho. Computation: using STATA

Decision: Since Fc=5.34 > 3.098 or pvalue= 0.0073 < 0.05, fail to reject H0 Conclusion: we have sufficient evidence to say that one mean leverage rate of return is different. 2. Kruskal-Wallis A pharmaceutical company wishes to compare the efficacy of 3 drugs in reducing diastolic high blood pressure. Of the 15 randomly selected patients, all of similar blood pressure levels, 5 were randomly assigned to take drug A, 5 to drug B and the rest to drug C. The diastolic blood pressures of the 15 patients were recorded several hours after treatment. Is there evidence to indicate varying efficacy of the 3 drugs at the 5% level of significance? Drug A 100 100 100 95 95 Drug B 90 80 80 75 90 Drug C 110 90 80 100 95 Computation: i. Combine all the observation. Take note the population they come from.

A
100 ii.

A
95

A
95

B
90

B
80

B
90

C
110

C
90

C
95

100 100

80 75

80 100

Arrange the observation in ascending order then rank the observations without regard to the group.

Group
Observation

B
75

B
80

B
80

C
80

B
90

B
90

C
90

A
95

A
95

C
95

A
100

A
100

A
100

C
100

C
110

rank

9 12.5 12.5 12.5 12.5

95(9) 90 (6) 95(9)

15

iii. Add the ranks for each group. Drug A 100 (12.5) Drug B 90 (6) Drug C 110 (15)

100(12.5) 80 (3) 90 (6)

100(12.5) 80 (3) 80 (3)

95 (9) 75 (1) 100(12.5)

RA=55.5 RB=19.0 RC=45.5

iv. Since there are tied ranks, we use the formula*** below. ***The formula below is used when there are tied ranks. If no tied ranks, only use the numerator.
12 n n +1
k

H =

n
i =1 g

Ri2
i

3 n +1

g is the number of groupings of different tied ranks, and ti is the number of tied values within group i that are tied at a particular value.

1
i =1

t i3 t i
3

n n

STAT166 First Semester 2012-2013 JCYnion

STAT 166: STATISTICS FOR SOCIAL SCIENCES Exercise: Test of Hypothesis on k Populations
v. Refer to table in (ii), there are four groups with tied ranks. These are the values 80, 90, 95, and 100, hence, g = 4. Since the value 80 was observed thrice, then t1=3. Same with values 90 and 95, then t2=3 and t3=3, respectively. Since the value 100 was observed four times, then t4=4.

vi. Substitute the values needed in the formula.

Ri2 3(n +1) ) i =1 ni
g k

H =

12 n n +1

1
i =1

(t

3 i 3

ti

n n

# 55.52 192 45.52 & 12 + + % ( 3 15+1 5 5 ' 15 15+1 $ 5 = ) 33 3 + 33 3 + 33 3 + 43 4 , . 1 + + . 153 15 * -

) (

) (

) (

0.05 616.05+ 72.2 + 414.05 48 1 0.039286

*** for chi-square-tabular value using MS Excel, syntax: =chiinv(,df1)

55.115 48 = 7.406 0.960714

vii. Test of Hypothesis Ho: MdA = MdB = MdC Ha: At least one drug has a different median blood pressure reading. Test Statistic: H Decision rule: Reject Ho if 0.05(31) Computations: Using STATA
2
= 5.991

p-value < 0.05, Otherwise, fail to reject Ho.

Decision: Since 7.406 > 5.991 or 0.0247 < 0.05, we reject Ho. Conclusion: At least one drug has a different median blood pressure reading. 3. Two-way ANOVA A consumer research group is interested in how the price of a leading brand of aspirin varies across four different areas in the metropolis. They considered three different types of retail outlets, namely, drugstore, discount store and grocery store and gathered the following data. At the 5% level, what can the group conclude? Assume normality and equality of variances. Outlet Area Drugstore Discount Store Grocery Store Treatment total Downtown 2.63 2.39 2.81 7.83 Lakefront 2.50 2.30 2.70 7.50 West Side 2.48 2.19 2.58 7.25 North Suburbs 2.51 2.27 2.74 7.52 Block total 10.12 9.15 10.83

STAT166 First Semester 2012-2013 JCYnion

STAT 166: STATISTICS FOR SOCIAL SCIENCES Exercise: Test of Hypothesis on k Populations

a. Identify the following: i. Treatment variable : area (k = 4) ii. Blocking variable : outlet (b = 3) iii. Total number of observations (n): 12 b. Compute for the total for each group. c. Compute for the Grand Total (GT) by adding all the observations. GT = 2.63+ 2.50 + ... + 2.58 + 2.74 = 30.1 d. Compute for the Correction Factor (CF).

(GT) = (30.1) CF =
n 12
e. Compute for the Total Sum of Squares (TSS).
4 3

= 75.5008333

TSS = Yij2 CF = 2.632 + 2.502 + ... + 2.582 + 2.742 CF = 0.4177667

i=1 j=1

f.

Compute for the Treatment Sum of Squares (TrSS).

# 7.832 7.502 50.52 50.02 & Ti2 TrSS = CF = % + + + ( 75.5008333=75.5572667 75.5008333=0.05643337 3 3 3 ' $ 3 i=1 b
k

g. Compute for the Block Sum of Squares (BlkSS).

b

BlkSS =
j=1

Tj2

# 10.122 9.152 10.832 & CF = % + + ( 75.5008333=75.85645 75.5008333=0.3556167 k 4 4 ' $ 4

h. Compute the Error Sum of Square (ESS) by subtracting TrSS and BlkSS to TSS.

ESS=TSS-(TrSS+BlkSS) = 0.4177667 0.056433373+ 0.3556167 = 0.005716672

i. Construct the partial ANOVA table. Identify the degrees of freedom (df). Compute for Mean Square (MS)=SS/df. SV df SS MS Fc=MS__/MSE Ftab*** Block 2 0.3556167 0.17780835 186.6223** F0.05 (2, 6)=5.1432 Treatment 3 0.05643337 0.01881123 19.7437** F0.05 (3, 6)=4.7471 Error 6 0.005716627 0.0009527711667 Total 12 0.4177667 *** for f-tabular value using MS Excel, syntax: =finv(,df1,df2) *** fin ***

STAT166 First Semester 2012-2013 JCYnion