The variance of 100 daily stock returns for Stock A is 0.0078. The variance of 90 daily stock returns for Stock B is 0.0083. Using a 5% level of significance, the critical value for this test is 1.61. The most appropriate conclusion regarding whether the variance of Stock A is different from the variance of Stock B is that the: | B)
| variance of Stock B is significantly greater than the variance of Stock A. |
| C)
| variances are not equal. |
|
A test of the equality of variances requires an F-statistic. The calculated F-statistic is 0.0083/0.0078 = 1.064. Since the calculated F value of 1.064 is less than the critical F value of 1.61, we cannot reject the null hypothesis that the variances of the 2 stocks are equal. |