Z-Test

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. P-Test

    A statistical method used to test one or more hypotheses within ...
  2. T-Test

    A statistical examination of two population means. A two-sample ...
  3. Simple Random Sample

    A subset of a statistical population in which each member of ...
  4. Adjusted Mean

    Statistical averages that have been corrected to compensate for ...
  5. Distribution

    1. When trading volume is higher than that of the previous day ...
  6. Statistically Significant

    The likelihood that a result or relationship is caused by something ...
RELATED FAQS
  1. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  2. How do I use the rule of 72 to estimate compounding periods?

    The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >>
  3. How can I use Bollinger Bands® to spot options trading opportunities?

    Traders can use Bollinger Bands in a couple of different types of trading strategies. The most common strategy is using Bollinger ... Read Full Answer >>
  4. How can I run linear and multiple regressions in Excel?

    The first step in running regression analysis in Excel is verifying that your software has the capabilities to perform the ... Read Full Answer >>
  5. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
  6. How do I calculate the standard error using Matlab?

    In statistics, the standard error is the standard deviation of the sampling statistical measure, usually the sample mean. ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  2. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.
  3. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  4. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  5. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
  6. Fundamental Analysis

    Calculating the Present Value of an Annuity

    The present value of an annuity is the current, lump sum value of periodic future payments as calculated using a specific rate.
  7. Fundamental Analysis

    How Does Sampling Work?

    Sampling is a term used in statistics that describes methods of selecting a pre-defined representative number of data from a larger data population.
  8. Economics

    Understanding Marginal Analysis

    Marginal analysis is the process of comparing a one-unit incremental cost increase of an activity with a corresponding increase in benefits.
  9. Fundamental Analysis

    Calculating the Equity Risk Premium

    Equity risk premium is the excess expected return of a stock, or the stock market as a whole, over the risk-free rate.
  10. Fundamental Analysis

    What is a Representative Sample?

    In statistics, a representative sample accurately represents the make-up of various subgroups in an entire data pool.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
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!