A statistical method used to test one or more hypotheses within a population or a proportion within a population. When testing a hypothesis about a population proportion (p) within a large population (one in which the sample size, "n", is not greater than 5% of the overall population), the formula is:

x = (m/n-P) / SqRt[P(1-P)/n]
m= "yes" response
n = random sample size
p = proportion
P = population

This formula is used to test three hypotheses:

  1. p ≤ P
  2. p ≥ P
  3. p = P

The p-test statistic typically follows a standard normal distribution when large sample sizes are used, and researchers use Z-tests to determine whether a hypothesis passes based on a specific significance level will be rejected. The larger the p-value in the p-test, the more likely the hypothesis is true.


For example, a polling group contacted a group of investors and asked if they felt that the economy would fall into a recession. Of the 1000 people contacted, 700 said that they thought that the economy was heading toward recession. The researchers then applied the P-Test to determine if p ≤ 0.60, p ≥ 0.60, or p = 0.60; basically, what percentage of the population believe that the economy will fall into a recession.

  1. T-Test

    A statistical examination of two population means. A two-sample ...
  2. Representative Sample

    A subset of a statistical population that accurately reflects ...
  3. Z-Test

    A statistical test used to determine whether two population means ...
  4. Statistical Significance

    A result that is not likely to occur randomly, but rather is ...
  5. Sampling Error

    A statistical error to which an analyst exposes a model simply ...
  6. Probability Distribution

    A statistical function that describes all the possible values ...
Related Articles
  1. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  2. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  3. Forex Education

    Trading With Gaussian Models Of Statistics

    The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications.
  4. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  5. Fundamental Analysis

    Scenario Analysis Provides Glimpse Of Portfolio Potential

    This statistical method estimates how far a stock might fall in a worst-case scenario.
  6. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  7. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  8. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  9. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  10. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  1. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!