Statistics Solutions

(Steps Shown) Sign Test Are stock splits beneficial to stockholders? SNL Securities studied stock splits in the banking industry over an 18-month period

Question: Sign Test

Are stock splits beneficial to stockholders? SNL Securities studied stock splits in the banking industry over an 18-month period and found that stock splits tended to increase the value of an individual’s stock holding. Assume that of a sample of 20 recent stock splits, 14 led to an increase in value, four led to a decrease in value, and two resulted in no change. Suppose a sign test is to be used to determine whether stock splits continue to be beneficial for holders of bank stocks.

  1. What are the null and alternative hypotheses?
  2. With α = .05, what is the rejection rule?
  3. What is your conclusion?
    (Reference: Anderson, Sweeney, Williams, 2002, print version, section 5, p. 381, Question 3)
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