Z-Test

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DEFINITION of 'Z-Test'

A statistical test used to determine whether two population means are different when the variances are known and the sample size is large. The test statistic is assumed to have a normal distribution and nuisance parameters such as standard deviation should be known in order for an accurate z-test to be performed.

BREAKING DOWN 'Z-Test'

A one-sample location test, two-sample location test, paired difference test and maximum likelihood estimate are examples of tests that can be conducted as z-tests. Z-tests are closely related to t-tests, but t-tests are best performed when an experiment has a small sample size. Also, t-tests assume that the standard deviation is unknown, while z-tests assume that it is known. If the standard deviation of the population is unknown, the assumption that the sample variance equals the population variance is made.

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RELATED FAQS
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    The most common types of regression an investor can use are linear regressions and multiple linear regressions. Regressions ... Read Full Answer >>
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    Assets that have a negative correlation with each other reduce portfolio variance. Variance is one measure of the volatility ... Read Full Answer >>
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