- 25 Marks
QMDM – OCT 2022 – L2 – Q6 – Hypothesis Testing for Variance Difference in Mutual Funds
Using hypothesis testing, determine if there is a significant difference in the variances of annualized performance between samples of newly created M-mutual funds and Q-mutual funds in Ghana.
Question
A lot of investors have been reading about something called the “new-fund effect”. That is the tendency of new funds to outperform their older peers because of any one of a number of
factors: better access to initial public offerings, more motivated managers, or better spreads on
trades. However, despite the potential growth benefits of new funds , their volatility makes many
investors uncomfortable. Consider a sample of 10 newly M- mutual funds and a sample of 10 newly
Q-mutual funds randomly selected from all mutuals funds in Ghana that are less than 18 months
old as follows:
| Annualized Performance of Newly M- Mutual Funds | Annualized Performance of Newly Q-Mutual Funds |
|---|---|
| 13.7 | 9.5 |
| 15.3 | 14.9 |
| 7.9 | 10.8 |
| 9.8 | 11.5 |
| 13.6 | 11.3 |
| 13.6 | 25.2 |
| 11.4 | 12.0 |
| 8.6 | 6.3 |
| 14.6 | 12.7 |
| 15.2 | 12.4 |
Using a hypothesis testing procedure, investigate whether there is sufficient evidence to conclude
that there is a significant difference in variance of newly created M and Q mutual funds.
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