P-Test

AAA

DEFINITION of 'P-Test'

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.

INVESTOPEDIA EXPLAINS 'P-Test'

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.

RELATED TERMS
  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. Statistically Significant

    The likelihood that a result or relationship is caused by something ...
  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. Trading Strategies

    What does a double bottom tell a trader about the overall trend?

    Learn how a double bottom pattern forms on a price chart and why many traders consider double bottoms to be a sign of reversal in the price trend.
  7. Trading Strategies

    What are the main differences between a double top and a double bottom?

    Identify double tops and double bottoms, and learn what each could mean for the security's current price trend. Discover how other indicators verify movements.
  8. Technical Indicators

    What are common trading strategies used when identifying a double bottom

    Use simple, low-risk trading strategies to take advantage of a double bottom formation. Traders typically take one of these approaches to buying the market.
  9. Technical Indicators

    What is a common price target when identifying a double bottom?

    Learn how to identify a double bottom stock pattern and where to set a target selling price point to get the most out of your investment.
  10. Forex Strategies

    What are the most common momentum oscillators used in forex trading?

    Explore two frequently used momentum indicators in forex trading, the moving average convergence divergence, or MACD, and the relative strength index, or RSI.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center