T-Test in Parametric Tests (with Finance Examples)

The t-test is a parametric statistical test used to determine whether there is a significant difference between the means of two groups, assuming the data follows a normal distribution and the population variance is unknown. Types of t-tests: Type Purpose Example in Finance One-sample t-test Compares sample mean to a known value Test if the average return of a mutual fund is significantly different from the market’s average return (e.g., Nifty 50 annual return of 12%). Two-sample independent t-test Compares means of two independent groups Compare the average returns of two different portfolios (e.g., a growth fund vs. a value fund). Paired-sample t-test Compares means from the same group at different times Compare a company's stock return before and after a major policy change or merger. Example 1: One-Sample t-test in Finance P...