Lesson 5 of 7 · All lessons in this module
  1. The six steps and stating the hypotheses
  2. Type I and Type II errors, significance and powerVideo lesson
  3. Critical values, p-values and the decision ruleVideo lesson
  4. Testing a single mean
  5. Two means: independent vs paired samplesVideo lesson
  6. Testing variances: chi-square and FVideo lesson
  7. Parametric vs nonparametric tests

Lesson 5 of 7 · 14 min

Two means: independent vs paired samples

Before comparing two means, decide whether the samples are independent (pooled t-test on the difference in means) or related (paired comparisons test on the mean of the differences).

In short

  • Independent samples from normal populations with unknown but equal variances: pooled t-test with n1+n2−2n_1 + n_2 - 2 df.
  • The pooled variance sp2s_p^2 is a df-weighted average of the two sample variances.
  • Dependent (paired) samples, such as two assets over the same dates or the same firms before and after: compute each pair's difference and run a paired comparisons test with n−1n - 1 df.
  • On related data the paired test is more powerful, because differencing strips out variation the samples share.
  • Usual null: no difference (μ1−μ2=0\mu_1 - \mu_2 = 0 or μd=0\mu_d = 0). One-sided versions work just as for a single mean.

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