Many a times, we want to test the validity of a statement. Consider the following question:
Is the mean return from this mutual fund more than the mean return from the benchmark?
While answering such a question, our interest is not to find the actual mean returns of the mutual fund, but to test whether the statement holds true or not.
A hypothesis is a statement about one or more populations like the statement above.
Hypothesis testing is a standard procedure to test the hypothesis. There could be two possible results:
- The hypothesis is correct and hence should be accepted.
- The hypothesis is incorrect and should be rejected.