Chapter 1 PDF

A Primer on
Nonparametric
Analysis, Volume I
A Primer on
Nonparametric
Analysis, Volume I
Shahdad Naghshpour
A Primer on Nonparametric Analysis, Volume I

Copyright Business Expert Press, LLC, 2016
All rights reserved. No part of this publication may be reproduced, stored
in a retrieval system, or transmitted in any form or by any means
electronic, mechanical, photocopy, recording, or any other except for brief
quotations, not to exceed 250 words, without the prior permission of the
publisher.
First published in 2016 by

Business Expert Press, LLC
222 East 46th Street, New York, NY 10017
www.businessexpertpress.com
ISBN-13: 978-1-63157-445-0 (paperback)
ISBN-13: 978-1-63157-446-7 (e-book)
Business Expert Press Economics Collection
Collection ISSN: 2163-761X (print)
Collection ISSN: 2163-7628 (electronic)
Cover and interior design by S4Carlisle Publishing Services Private Ltd.,
Chennai, India
First edition: 2016
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
To Joe
SN
Abstract
Nonparametric statistics provide a scientific methodology for cases where
customary statistics are not applicable. Nonparametric statistics are used
when the requirements for parametric analysis fail, such as when data are
not normally distributed or the sample size is too small. The method
provides an alternative for such cases and is often nearly as powerful as
parametric statistics. Another advantage of nonparametric statistics is that
it offers analytical methods that are not available otherwise.
In social sciences, often, it is not possible to obtain measurements,
which renders customary analysis impossible. For example, it is not possible to measure utility but is possible to rank preference, which is based
on the unmeasurable utility. Nonparametric methods provide theoretically valid options for analysis, making the use of unscientific methods
unnecessary.
Nonparametric methods are intuitive and simple to comprehend,
which helps researchers in the social sciences understand the methods in
spite of lacking mathematical rigor needed in analytical methods customarily used in science. The only prerequisite for this book is high
school level elementary algebra.
This book is a methodology book and bypasses theoretical proofs
while providing comprehensive explanations of the logic behind the
methods and ample examples, which are all solved using direct computations as well as by using Stata.
The book is arranged into two integrated volumes. Although each
volume, and for that matter each chapter, can be used separately, it is
advisable to read as much of both volumes as possible; because familiarity
with what is applicable for different problems will enhance capabilities.
It is recommended that everyone read the Introduction and Chapter 1
because determining whether data are random or normally distributed is
essential in the selection of parametric versus nonparametric methods.
Keywords
Nonparametric statistics, median, order statistics, rank, one sample, two
samples, several samples, multiple comparison, normality, skewness.
Contents
Acknowledgments .................................................................................. xi
Introduction ....................................................................................... xiii
SECTION I
One-Sample Tests ........................................................ 1
Chapter 1 Goodness of Fit Tests ....................................................... 3

Chapter 2 Randomness Tests .......................................................... 39
Chapter 3 One-Sample Location Inference ..................................... 57
SECTION II One-Sample Tests ...................................................... 77
Chapter 4 Comparing Two Unrelated Samples:
The MannWhitney U Test .......................................... 79
Chapter 5 Goodness of Fit for Two Samples................................... 97
Index................................................................................................. 117
Acknowledgments
This manuscript could not have been completed without the great assistance provided by Madeline Messick. She is a meticulous researcher
with a keen eye for details. Her dedicated hard work and careful contribution have improved the manuscript. Any shortcomings and imperfections are my responsibilities. I cannot thank Madeline enough for her
contributions.
Introduction
The term nonparametric statistical analysis refers to methods that do not
assume any particular distribution function for the population from
which samples are obtained. This does not mean that nonparametric
methods do not use parameters. In fact, many of the inferences involve
the median, which is a parameter about the central tendencies of the
data. Sometimes, nonparametric methods are called distribution-free
methods, in the sense that their outcomes do not depend on any particular distribution, such as the normal distribution function. However,
more often than not, it indicates that the outcome is valid under different distribution functions or that the inference is valid even if one or
more of the prerequisite conditions of a statistical technique are violated.
Technically, nonparametric and distribution-free methods are not
necessarily identical or have the same concept, but the nuance is too
technical to be of use for the purposes of this manuscript. When a test
does not critically depend on prerequisite conditions, it is called a robust
test. In this sense, all nonparametric tests are robust because they do not
depend on any particular distribution function or parameters; in other
words, they are valid under numerous distributions. However, strictly
speaking, the term robust describes a parametric test based on an assumption of normality that is valid when the population deviates from a
normal distribution function or the results are still valid in spite of violations of some of the theoretical requirements.
Definition I.1
A method of analysis is said to be robust with regard to an assumption
when the result remains valid even if the theoretical requirements are
not strictly met.
The advantage of robust tests is their applicability under diverse
conditions. In addition to wide applicability, it is important for a test to
be powerful. The power of a test is its ability to reject the null hypothesis
in favor of a specific alternative hypothesis when the null hypothesis is
xiv
INTRODUCTION
false. In other words, when a particular alternative hypothesis is true, the

power of a test is the probability of rejecting the null hypothesis. The
power of a test is represented by 1 , where is the probability of
type II error (the probability of not rejecting the null hypothesis when it
is false). The researcher is trying to prove the alternative hypothesis,
which is his or her claim, whereas the null hypothesis is what nullifies
the alternative hypothesis. Therefore, the power of a test is the ability to
refute the null hypothesis and establish the validity of the researchers
claim. The null hypothesis is rejected when the probability of rejecting it
erroneously (i.e., the probability of type I error, represented by ) is low.
Because there can be numerous possible alternative hypotheses, the
power of a test depends on the values of the alternative hypothesis and is
depicted as a function.
Definition I.2
The power of a test is the probability of rejecting the null hypothesis
when the null hypothesis is false.
The distinction between and is that the latter is the probability of rejecting the null hypothesis when it is true, whereas the former
represents the probability of failing to reject the null hypothesis when it
is false.
Definition I.3
Type I Error occurs when the null hypothesis is true and it is rejected.
Definition I.4
Type II Error occurs when the null hypothesis is false but is not rejected.
Table I.1 Summary of types of error in inference
H0 is true
H1 is true
H0 rejected
H0 not rejected
Type I error
No error
No error
Type II error
INTRODUCTION
xv
When parametric methods are utilized inappropriately (such as

when the test requires a normal distribution but the population does not
have a normal distribution), they are no longer valid and often the corresponding nonparametric method is more powerful. It would be inappropriate to use a parametric method when its requirements regarding
data or the governing distribution function are not met.
Most nonparametric statistics are based on ranking of data values or
count data. Nonparametric methods are usually not affected by outliers
especially methods that are based on the median, as one advantage of the
median over the mean is that it is not influenced by extreme values. When
there is an odd number of observations, the observation in the middle is
the median. For the case with an even number of observations, the average
of the two observations in the middle is the median.
Parametric Statistics
Before continuing the discussion of nonparametric analysis, it is helpful
to better understand parametric statistics, the requirements of parametric analysis, and the relevant terminology. The term statistics has three
distinct meanings. First, it represents a collection of data; second, it refers to the processes that are used to analyze data. The processes include
descriptive statistics, such as the mean, median, mode, range, variance,
and other measures that condense and summarize data. Statistical analysis also includes the process called inferential statistics, or simply statistics,
which utilizes data obtained from a sample to draw inferences about a
population. Third, the term statistics refers to the field of study that
deals with collecting, analyzing, and explaining data.
Definition I.5
A population is the collection of all the elements under study.
Definition I.6
A sample is a selection of some members of a population. In statistics,
samples are collected at random, with few exceptions.
xvi
INTRODUCTION
Conventionally, the topic of statistics deals with parametric statistics.

Parametric statistics require a known distribution function or proof that
the sample statistics conform to the requirements and properties of a
known probability distribution function. When statistics that meet such
parametric requirements are tested, the process is a parametric test. Inherent characteristics of probability distribution functions are called
parameters, such as the mean and variance. Parameters of a distribution
function determine its properties. Sample statistics are tested against the
benchmark of the parameters of a probability distribution function.
Definition I.7
A parameter is a characteristic of a population that is of interest. Parameters are constant and usually unknown.
Definition I.8
A statistic is a numeric fact or summary obtained from a sample. It is
always known and is a variable.
All parametric statistics require a probability distribution function.1
Often, the behavior of an event can be approximated by a particular
probability distribution function; for example, countable random events
such as the number of accidents or phone calls during a given period can
be reasonably approximated by a Poisson distribution function. The
distribution function of many sample statistics, such as the mean, can be
approximated using a normal distribution function based on the Central
Limit Theorem (CLT) (see Theorem I.1).
Parametric statistics require that the sample points be independently
and identically distributed and that the sample size be large enough.
Preferably, samples used in parametric research deal with interval or
ratio data (see Definitions I.9 and I.10), and the variances of their respective populations are of comparable magnitude.
Naghshpour, S. 2016. Statistics for Economics. New York, NY: Business

Expert Press.
INTRODUCTION
xvii
In this book, we adopt the convention of using Greek letters to represent parameters. Sample statistics are represented by the Greek letter
of the corresponding parameter with a hat (^), indicating they are estimates. For example, the letter (mu) is used for the population parameter mean, and is used to represent the sample mean.
Theorem I.1 Central Limit Theorem (CLT)

Let be a population parameter. Let be the estimated value of that is
obtained from a sample. If we repeatedly sample at random from this
population, the variable will have the following properties:
1. The distribution function of can be approximated by the normal distribution.

2. E ( ) =
3. 2 =
2
N
The CLT indicates that for a large enough sample, the distribution
function of several sample statistics complies with the normal distribution or distribution functions derived from normal distribution such as t
and F. This demonstrates the importance of random sampling in ensuring the validity of the CLT. Because in many instances statistical analysis pertains to sample statistics such as means and variance, it is often
possible to use the CLT to justify the use of a normal distribution function and other statistical functions that are derived from it.
Measurement Scales
Because different nonparametric tests apply to different types of data, it
is necessary to define measurement scales of data first.
Definition I.9
A ratio scale provides meaningful use of the ratio of measurements in

addition to interval size and order of scales.
xviii
INTRODUCTION
A ratio scale has a natural zero. For example, sales, gross domestic
product (GDP), and output are expressed as ratio scales and all have a
meaningful and natural zero; when nothing is produced GDP is 0. The
ratio scale has all the properties of the other measurement scales.
Definition I.10
In an interval scale, the differences of the values are meaningful.

In an interval scale, the relative distances of any two sequential values are the same. The size of the difference between measurements is
important, and the values are measured from an accepted zero, which
may be determined arbitrarily. This makes use of the choice of measurement unit irrelevant as in the case of Celsius and Fahrenheit scales
for temperatures. Both scales have an arbitrary zero. With interval scales,
some arithmetic computations, such as addition and subtraction, are
meaningful. This also allows use of statistics that are based on the deviations of values from an arbitrary point, such as the mean of the data,
which is a common practice in statistics. The interval scale has the properties of ordinal and nominal scales as well.
Definition I.11
An ordinal scale indicates that data are ordered based on some characteristic of the data.
Although orders or ranks are represented by numerical values, such
values are void of content and cannot be used for typical computations
such as averages. The distances between ranks are meaningless as well. The
income of the person who is ranked 20th in a group of ordered incomes is
not necessarily twice the income of someone who is ranked 40th. In an
ordinal scale, only the comparisons greater, equal, or less are meaningful. Ordinal scales are very important in economics, as in the case of
utility and indifference curves. It is not necessary to measure the amount
of utility a consumer receives from different goods and services; it is sufficient to rank the consumers utility. The customary arithmetic computations and statistical methods do not apply to ordinal numbers.
INTRODUCTION
xix
Definition I.12
A Likert scale is a special type of ordinal scale, where the subjects provide
the ranking of each variable.
An odd number of choices are typically used in Likert scales to allow
the center value to represent the neutral case. For example, a subject is
asked to rate his or her preference on a scale of 1, very low, to 5, very
high. In this case, a choice of 3 would represent a neutral response, indicating no preference.
Definition I.13
Nominal or categorical data classify objects and observations by naming
them.
The values assigned to nominal outcomes are merely a name or representation of the outcome. Countries might be grouped according to
their policy toward trade and classified as open or closed economies.
Care must be taken to ensure that each case belongs to only one group.
An ID number is another example of nominal data. Because the size of
nominal data cannot be measured, the customary arithmetic computations and statistical methods do not apply to these numbers. Assigning
numerical values to categorical data is merely for convenience, and the
assigned values are void of any computational capabilities. Sometimes,
nominal data are used to count the outcomes such as the number of
quarters with recession. When used for this purpose, they are also
known as count data, categorical data, or frequency data.
Definition I.14
Dichotomous data only have two outcomes.
When there are only two nominal outcomes, such as yes/no,
young/old, or male/female, the data is dichotomous. Dichotomous variables are also known as dummy variables in econometrics. When there is no
particular order, a dichotomous variable is called a discrete dichotomous
variable. Gender is an example of a discrete dichotomous variable. Alternatively, when one can place an order on dichotomous data, as in the case
of young and old, then the variable is a continuous dichotomous variable.
xx
INTRODUCTION
The least restrictive scale in terms of requirements is the nominal

scale, followed by ordinal scale, interval scale, and ratio scale. Most parametric statistics require a ratio scale or at least an interval scale, whereas
nonparametric statistics can operate on a nominal scale or an ordinal
scale. A method that can use the weaker measurement scales can also
operate with stronger measurement scales. Therefore, a nonparametric
method that only requires nominal scale data can also be used with the
ratio scale. When both the parametric and nonparametric methods are
applicable, the more efficient one should be used. The term efficient refers to the relative efficiency of the hypothesis test, which is different
from the efficiency of a point estimate (Definition I.20).
Definition I.15
The relative efficiency of hypothesis test is the ratio of the sample sizes required to achieve the same power (1 ).
Unless there is any ambiguity, we will refer to the relative efficiency
of hypothesis as the efficiency or relative efficiency. Usually, the relative
efficiency is based on large samples and is known as the asymptotic relative efficiency (ARE) or Pitman efficiency. Relative efficiency depends on
the null (H0) and alternative (H1) hypotheses, and the type I and type II
levels and . The relative efficiency of test A to test B is (nB /nA ),
where the numerator and the denominator are the sample sizes of B and
A, respectively, required to achieve the same power ( ) for a given level
of type I error ( ) .
Limitations of Parametric Statistics

Conducting a parametric analysis when one or more of the requirements
are violated invalidates the resulting inference.2 Statistical analysis devotes
substantial effort to determining what parametric methods are valid under
what conditions in order to ensure the relevancy of the inferences. Serious
problems occur when the population does not conform to the distribu-
Ibid.
INTRODUCTION
xxi
tional requirements of the prescribed analysis. The most commonly used

distribution function in statistics is the normal distribution function.
There are three reasons for this. First, there are many events and outcomes
that conform to the normal distribution. Second, the CLT permits the
use of normal distribution under proper sampling. Third, for large
enough samples, the outcome of many distribution functions can be
approximated by the normal distribution. When the sample size is not
sufficiently large or the population does not have a normal distribution
function, the use of parametric analysis based on normality results in
erroneous estimation and prediction.
Sometimes, the lack of conformity to the requirements of parametric
analysis is because of unusual occurrences. For example, natural or manmade disasters such as hurricanes or wars may distort data. In such cases,
removal of unrepresentative values might eliminate the problem, and the
data would comply with the theoretical requirements of parametric analysis. After removing the extreme values, verify that the sample size is large
enough for the desired level of significance. It might be possible to change
the design of the study to obtain a different type of data to conform to
the requirements. For example, instead of a dichotomous variable, the
data could be on an interval scale. When such transformations are not
possible, the use of the parametric methods is suspect.
Occasionally, transformations of data enable the use of parametric
methods such as when there is a logarithmic, exponential pattern, or
growth rates that can be approximated by an exponential function. When
there are observations with negative values, which make taking logarithms
impossible, it might be necessary to square all the data points, whereas at
other times, such as when observations are count data, taking the square
root may allow normal approximation. When data are skewed, taking the
logarithm of the observations could eliminate or reduce the problem.
Deviations from Normality
Normality is usually a main requirement for parametric analysis. Distributions may deviate from a normal distribution in a number of ways
such as asymmetry or degree of peakedness. A distribution function that is
xxii
INTRODUCTION
not symmetric is either negatively skewed, as in Figure I.1, or positively

skewed, as in Figure I.2.
Figure I.1 Comparison of a negatively skewed distribution with

normal
Figure I.2 Comparison of a positively skewed distribution with normal
Definition I.16
Skewness is a measure of asymmetry from the mean as compared to the
normal distribution.
Definition I.17
Kurtosis is a measure of how peaked a distribution is. It reflects the
pointedness or flatness of a symmetric distribution.
A distribution more pointed than the normal distribution is called
leptokurtic and it has a positive kurtosis, whereas a negative value for kurtosis indicates the distribution is flatter than a normal distribution and is
called platykurtic. Kurtosis and skewness are used to test whether a data
set follows a normal distribution (Figures I.3 and I.4).
INTRODUCTION
xxiii
Figure I.3 Comparison of negative kurtosis (platykurtic or flatter)

with normal
Figure I.4 Comparison of positive kurtosis (leptokurtic or pointed)

with normal
The command summarize in Stata when invoked with the option detail
provides the values for skewness and kurtosis in conjunction with several
other descriptive statistics. To test the significance of the values for
skewness and kurtosis, it is necessary to use the Stata command sktest.
summarize varlist, detail
sktest varlist
where varlist is the names of all the variables for which the test is desired. Failure to provide variable names will result in an error message.
When more than one variable is listed, the results for each variable are
displayed on different lines. The output consists of the number of observations, p values for skewness and kurtosis, and a chi-squared test of
joint skewness and kurtosis hypothesis. In all cases, the null hypothesis is
that the underlying distribution is normal. Because a distribution can be
skewed without being pointed or flat and vice versa, it is necessary to test
both skewness and kurtosis jointly if the objective is to test for normality, otherwise the actual p value will be higher than the reported level of
significance for each separate hypothesis. This issue is discussed in
Chapter 1 of Volume II under Bonferroni adjustment. Stata warns
against using sktest for testing normality. Instead, it recommends using
the ShapiroWilk command (swilk) to test normality, and once the
hypothesis is rejected, it recommends using sktest to determine whether
skewness, kurtosis, or both are the cause.
xxiv
INTRODUCTION
Sometimes, parametric methods cannot be applied because there is

no parameter. For example, the Cauchy distribution function does not
have a mean; thus, it is not possible to use the CLT to obtain a parametric distribution function for the mean when the underlying distribution
is Cauchy and there is not sufficient information available to use a Cauchy distribution. However, like any other distribution, Cauchy has a
median, for which there are many tests available. Nonparametric statistics can be applied to nominal scale and ordinal scale measurements
as well.
Nonparametric Statistics
Nonparametric statistics are not limited by the requirements of parametric statistics, such as normality, existence of a mean or variance, or symmetry, to afford statistical inference. Most nonparametric statistics applications are not limited to interval or ratio scales. There is no common
parametric distribution for the sample median as is the case for the sample mean. However, there are several nonparametric inferences for median and other order statistics. Order statistics are represented by letters X or
Y, and superscripts are used to indicate their order, such as 1, 2, 3. and
in general as X(i). Order statistics are obtained when the sample points are
arranged in ascending order. For example, percentiles are order statistics
because they are in ascending order.
There are nonparametric counterparts for many of the parametric
inferential procedures. Nonparametric methods are also useful for testing the requirements of parametric inference such as normality and randomness. Therefore, it is often wise to test for normality and randomness of the response variable using nonparametric inference before attempting to conduct any parametric inference requiring normality, randomness, or symmetry.
Inference with Nonparametric Statistics
Inferential statistics using nonparametric statistics is similar to those of

parametric statistics:
INTRODUCTION
xxv
State the null and alternative hypotheses

Choose the appropriate statistic
Compute the test statistic
Reject the null hypothesis when the p value is low enough
Statistics software such as Stata reports the p value for every test. The
advantage of using p values is that when the p value is small enough, the
null hypothesis is rejected regardless of whether the method is parametric or nonparametric. When using tables instead of p values, the easiest
approach might be to obtain the tabulated value for a pre-specified level
of significance and compare the test statistic with it. For nonparametric
inferences, care should be taken to note whether the test statistic should
exceed or be less than the tabulated value in order to reject the null hypothesis, whereas in parametric inference, the null hypothesis is always
rejected when the calculated statistic is more extreme than the tabulated
value.
Properties of Estimators
Sample statistics are used as estimators of population parameters. Because

sample statistics provide a single estimated value for a parameter, they are
also called point estimates. It is desirable to be able to compare different
point estimates of the same parameters. The use of statistics to estimate
parameters or to draw inferences about population parameters are the
same for both parametric and nonparametric estimators. It is worthwhile
to state that nonparametric statistics do not provide new parameters or
even a new distribution function. Nonparametric statistics provide different statistics and tests for testing the same parameters as parametric statistics, except that they have fewer or no restrictions on the distribution
function of the population and the data.
Let , pronounced theta, be the population parameter of interest. Let
its estimate be , pronounced theta hat. Like any other point estimate,
is a sample statistic and a known variable.
xxvi
INTRODUCTION
Definition I.18 Unbiasedness
If the expected value of a point estimate equals the population parameter, then the estimate is unbiased. In symbols:
E () =
(I.1)
It can be shown that the sample mean ( ), variance ( ), and proportion

( ) are all unbiased estimates of their corresponding population parameters.
E ( ) =
(I.2)
E (2 ) = 2
(I.3)
E ( ) =
(I.4)
Definition I.19 Consistency
A point estimator is a consistent estimator if its variance gets smaller as

the sample size increases. The variance of the sample mean is defined as:
2 =
(I.5)
where n is the sample size. The variance of the sample mean decreases as
the sample size increases. Because the population variance is a parameter, it is also a constant; therefore, as the sample size (n) increases, the
ratio decreases. In addition, because the sample mean is an unbiased
estimate of the true population mean, it will get closer and closer to the
population mean as the sample size increases.
Definition I.20 Efficiency
A point estimator is a more efficient estimator if it has a smaller variance. If

and are two point estimates of <, and Var ( ) < Var ( ), then
1
1 is more efficient than 2 . For example, when estimating the population mean, the sample mean has a smaller variance than the sample median, and therefore is more efficient than the sample median in estimating
the population mean.
INTRODUCTION
xxvii
Thus, when the sample sizes are the same, the estimator with the
smaller variance is more efficient. Alternatively, when the variances of
two estimators are equal, the one with the smaller sample size is the
more efficient. An implicit requirement is that the level of significance
and the power (of the simple hypothesis) should be the same for valid
comparisons.
Do not confuse this notion of efficiency with the relative efficiency
of a test of hypothesis, which is important when comparing parametric
and nonparametric methods.
In general, nonparametric statistics find approximate solutions to
exact problems, as opposed to the exact solution to approximate problems furnished by parametric statistics.3
Conover, W.J. 1999. Practical Nonparametric Statistics. 3rd ed. New York,
NY: Wiley, p. 2.
SECTION I
One-Sample Tests
There are numerous nonparametric methods for different purposes,
sometimes even with the same name. Customarily, the methods are classified by the number of populations under study and their typea convention used in this book as well. Separate sections will be devoted to
one-sample, two-sample, and K-sample tests, as well as a section for correlation between two variables. Within each section, chapters will be
devoted first to major topics followed by related topics and issues. Some
of the tests can be classified in more than one way. For example, the
goodness of fit test can be classified under one-sample, two-sample, or
chi-squared tests based on the application. Chi-squared distribution
functions are used in many cases when data can be cross-classified as
different groups, especially in contingency table tests.
One-sample tests are concerned with testing claims about a parameter or characteristic of data from a single population. Normality and
randomness tests are examples of a single sample test regarding a statistical characteristic of a single population. The most common parametric
tests for one population are tests about the mean, proportion, and variance.1 Although there is no parametric test based on the median, there
are several nonparametric tests that use the median and other statistics
that depend on the order of data points. One-sample nonparametric
tests are also available for dichotomous or binary data.

Expert Press.
CHAPTER 1
Goodness of Fit Tests

Tests of goodness of fit compare the distribution of observed data from
a sample to ascertain how closely it matches a particular distribution
function. A common practice is to construct the cumulative distribution
function of the sample data and compare it with the normal distribution. Because data from only one population is used, the procedure is
classified under one-sample tests. However, two distribution functions
are actually involvedone for the sample and another belonging to the
normal distribution. Tests of goodness of fit can also be used to compare
samples from two different populations to determine whether their distributions are the same, and thus, would qualify to be classified as a twosample test as well.
When there is reason to believe that observed data belong to a population with a known distribution function with unknown parameter(s),
the test of goodness can be used based on the estimated value of the parameter using sample data and compare the test statistics with the chisquared critical values. Reject the hypothesis that the data is from the
specified distribution if the test statistic is more extreme than the tabulated values, or equivalently, if the p value is small enough.
Test of Skewness
The normal distribution is the most commonly used distribution function in parametric statistics. Theoretically, the tails of a normal distribution extend from minus infinity to plus infinity. However, in practice,
the majority of observations from normal distributions are within three
standard deviations of the mean. When the mean is a relatively large
positive value, the majority of the observations would be expected to be
positive. Therefore, it is possible to approximate non-negative outcomes
using a normal distribution in spite of the fact that the left tail contains
A PRIMER ON NONPARAMETRIC ANALYSIS, VOLUME I
no negative values. Yet the main reason for widespread use of the normal distribution is the applicability of the CLT, which assures normality
for the distribution of sample statistics such as the sample mean, median,
and proportions; provided that the sample is large enough, sample points
are drawn independently and at random, and are measured using a ratio
or interval scale. Under these requirements, tests of hypotheses can be
conducted using the normal distribution and the distribution functions
that can be derived from it, such as t, F, and chi-squared distribution
functionsexpanding the ability to test other parameters of a population such as the variance. It can also be shown that the same requirements will permit tests of comparisons of two or more means and variances as well.1
Normal distribution functions have two parameters: the mean ()
and the variance (2). A typical normal distribution with mean () and
variance (2) is depicted in Figure 1.1. An approximate distance from
the center (), measured in units of standard deviation (), is marked.
Figure 1.1 Normal distribution with mean = and variance = 2
Populations with identical means and variances do not necessarily have

the same distribution functions. Deviations from normality can be due
to positive or negative skewness as depicted in Figures 1.2 and 1.3.
The technical definition of skewness is based on the concept of moments in statistics.
Definition 1.1 The kth moment about the mean of variable X is the expected value of the kth power of (X ).
mk = E(X )k
(1.1)

Expert Press.
GOODNESS OF FIT TESTS
Figure 1.2 Comparison of negative skewness with a normal distribution
Figure 1.3 Comparison of positive skewness with a normal distribution
Translating this concept into terms that most readers are familiar
with results in Equation (1.2). When the sample size is small, it is necessary to correct for the sample size using a correction factor such as in
Equation (1.3). It is noteworthy that both the numerator and the denominator include deviations from the mean raised to a power, and thus
are moments about the mean.
( X )
Sk =
Sk =
2
( X )
n
n
(n 1)(n 2)
(1.2)
(1.3)
is the estiwhere Sk is the measure of skewness, X is the observation,

mated sample mean, is the estimated sample standard deviation, and
n is the sample size.
Example 1.1 Calculate the skewness for the closing prices for Microsoft
stock from May 21 to July 2, 2015.
Table 1.1 Microsoft closing stock prices May 21July 2, 2015 and
deviations from the mean
Date
MSFT
m1
m2
m3
m4
5/21/2015
47.42
1.3237
1.7521
2.3192
3.0698
5/22/2015
46.90
0.8037
0.6459
0.5191
0.4172
5/26/2015
46.59
0.4937
0.2437
0.1203
0.0594
5/27/2015
47.61
1.5137
2.2912
3.4681
5.2495
5/28/2015
47.45
1.3537
1.8324
2.4805
3.3577
5/29/2015
46.86
0.7637
0.5832
0.4454
0.3401
6/1/2015
47.23
1.1337
1.2852
1.457
1.6517
6/2/2015
46.92
0.8237
0.6784
0.5588
0.4603
6/3/2015
46.85
0.7537
0.568
0.4281
0.3226
6/4/2015
46.36
0.2637
0.0695
0.0183
0.0048
6/5/2015
46.14
0.0437
0.0019
8E-05
4E-06
6/8/2015
45.73
0.366
0.1342
0.049
0.018
6/9/2015
45.65
0.446
0.1992
0.089
0.0397
6/10/2015
46.61
0.5137
0.2639
0.1355
0.0696
6/11/2015
46.44
0.3437
0.1181
0.0406
0.0139
6/12/2015
45.97
0.126
0.016
0.002
0.0003
6/15/2015
45.48
0.616
0.3799
0.234
0.1443
6/16/2015
45.83
0.266
0.0709
0.019
0.005
6/17/2015
45.97
0.126
0.016
0.002
0.0003
6/18/2015
46.72
0.6237
0.389
0.2426
0.1513
5E-08
2E-10
6/19/2015
46.10
0.0037
1E-05
6/22/2015
46.23
0.1337
0.0179
0.0024
0.0003
6/23/2015
45.91
0.186
0.0347
0.006
0.0012
6/24/2015
45.64
0.456
0.2082
0.095
0.0434
6/25/2015
45.65
0.446
0.1992
0.089
0.0397
6/26/2015
45.26
0.836
0.6995
0.585
0.4892
6/29/2015
44.37
1.726
2.9802
5.145
8.8818
6/30/2015
44.15
1.946
3.7882
7.373
14.351
7/1/2015
44.45
1.646
2.7104
4.462
7.3463
Table 1.1 (Continued)

Date
MSFT
7/2/2015
m1
m2
m3
m4
44.40
1.696
2.8775
4.881
8.2802
Sums
1382.9
0.0000
25.054
10.796
54.808
Mean
46.096
0.0000
0.8351
0.36
1.8269
Solution 1.1
Table 1.1 provides the first, second, third, and fourth powers of the deviation of the values from the estimated mean, which are depicted as m1,
m2, m3, and m4. Therefore, they are the first, second, third, and fourth
moments about the mean. There is close relationship between the moments and the statistical measures of the mean, variance, skewness, and
kurtosis. The equation for skewness (1.2) clearly indicates the presence
of the moments about the mean. The first moment about the mean is
given in Equation (1.4).
m1 = E ( X ) X = 0
(1.4)
And the second moment about the mean is given in Equation (1.5).
m2 = 2
(1.5)
Calculate the skewness.
( X )
( 10.79612)
30
n
Sk =
=
3
3
25.05448
)2
(
X
30
0.35987067 0.35987067 0.35987067

=
=
=
= 0.47152
3
0.9138653
0.763214
0.835149
3
Standard Deviation of Skewness

In order to conduct a test of hypothesis regarding skewness, it is necessary to use the standard error of the skewness. Equation (1.6) depicts the
formula for the standard deviation of skewness.
S =
k
6n(n 1)
(n 2)(n + 1)(n + 3)
(1.6)
where Sk is the estimated standard error of skewness,which should not

be confused with , which is the estimated standard deviation of the
observations. As is evident from Equation (1.6), only the sample size
affects the standard deviation of skewness.
Definition 1.2 When observed values are sample statistics, their standard deviations are known as standard errors.
Therefore, the standard deviation for skewness, which is a statistic, is
actually a standard error.
Example 1.2 Calculate the standard deviation of the skewness for the
closing prices for Microsoft stock from May 21 to July 2, 2015.
Solution 1.2
S =
k
6n(n 1)
(n 2 )(n + 1)(n + 3)
6 x 30(30 1)
5,220
=
= 0.18222 = 0.42689
(30 2)(30 + 1)(30 + 3)
28,644
Software Use
Stata calculates skewness using the command
where varlist is the name(s) of the desired variable(s). Stata uses Equation (1.2) to calculate skewness. Using the correction factor will result in
slightly different results when the sample size is small. The Stata command summarize calculates both skewness and kurtosis in addition to a
host of other descriptive statistics. It is necessary to use the option detail.
Summarize can be shortened as sum.
Example 1.3 Calculate the skewness for the closing prices for Microsoft
stock from May 21 to July 2, 2015 using Stata (Figure 1.4).
Solution 1.3
Hypothesis The null hypothesis is that the data has a normal distribution, which indicates that its skewness is 0. The alternative hypothesis
reflects the researchers claim about whether the data is skewed to the
left, to the right, or that is equally likely to be skewed to one side or the
other. The latter is used when the direction of skewness is not of interest
and only the deviation from symmetry is of concern.
Figure 1.4 Stata command and output for obtaining skewness and
kurtosis
H0 : Sk = 0
H1 : Sk > 0
H1 : Sk < 0
H1 : Sk 0
Test Statistic
The test statistic is simply a Z score or Z statistic as depicted in Equation
(1.7).
Sk 0
S
Z Sk =
(1.7)
where
is the test statistic for testing normality using skewness. The
value 0 in the numerator reflects the fact that the skewness for a normal
distribution is 0, which is the null hypothesis.
Definition 1.3 When sample points or observations are standardized,
the Z score is represented by Equation (1.8).
Z=
Observed Expected
Standard Deviation
(1.8)
10
In the context of a test of hypothesis, the formula can be expressed as:
Z=
Estimated Hypothesized
Standard Error
(1.9)
Example 1.4 Test the hypothesis that the distribution of the closing
prices of Microsoft stock is not symmetrical.
Solution 1.4
The null and the alternative hypotheses are:
H1: Distribution is skewed
H0: Distribution is symmetric
Because the skewness for the normal distribution is zero, the hypotheses
can be written as:
H0 : Sk = 0
H1 : Sk 0
Because there is no a priori knowledge regarding the shape of the

price of Microsoft stock, the alternative hypothesis is two-tailed. Use the
estimated values of skewness and its standard deviation from Examples
1.2 and 1.3 to calculate the test statistic presented in Equation (1.7).
Z Sk =
Sk 0 0.4715205
=
= 1.10454
Sk 0.426892
The p value for this test statistic is 0.1357, which is not low enough to
reject the null hypothesis that the distribution is normal. Confirm the p
value using Stata.
Software Use
The test statistic for testing skewness in Stata is the command sktest followed by the variable name. Stata uses Equation (1.2) to calculate skewness. Using the correction factor in Equation (1.3) generates a slightly
different result when the sample size is small. Furthermore, the Stata
command summarize calculates both skewness and kurtosis in addition
to a host of other descriptive statistics. It is necessary to use the option
detail with the command summarize. There does not appear to be a
command in Stata to obtain the standard deviation for skewness.
11
prices of Microsoft stock is not symmetrical using Stata.
Solution 1.5
The Stata command and output that provides the p value corresponding
to the Z statistic for skewness is depicted in Figure 1.5. Make sure to
issue the command summarize, detail first.
Figure 1.5 Stata command and output for the sktest test of skewness
The corresponding p value for the test statistic for a one-tailed test is
0.2298. The p value is too high, and the null hypothesis of normality
from the perspective of symmetry should not be rejected. The output
also includes a joint chi-squared test for skewness and kurtosis, which is
preferred to the individual tests of skewness and kurtosis unless the specific statistic is of interest, as will be discussed in Chapter 1 of Volume II
when addressing Bonferroni correction. The p value for the joint statistic
is also too high to reject the null hypothesis of normality. Thus, there is
a possibility that the closing prices of the Microsoft stock are close
enough to values from a normal distribution.
The Stata software recommends using the ShapiroWilk (swilk) test
of normality first. Only if the null hypothesis of normality is rejected,
use sktest to determine whether skewness, kurtosis, or both are the
source of deviation from normality.
Test of Kurtosis
Departure from normality could also be due to flatness or pointedness,
which is called kurtosis. A positive kurtosis (leptokurtic) is more pointed
than the normal distribution, whereas a negative kurtosis (platykurtic) is
flatter than the normal distribution. Negative and positive kurtoses are
depicted in Figures 1.6 and 1.7, respectively. When the data has a normal distribution, it is called mesokurtic.
12
Figure 1.6 Comparison of negative kurtosis (platykurtic or flatter)

with normal
Figure 1.7 Comparison of positive kurtosis (leptokurtic or pointed)

with normal
The technical definition of kurtosis is based on the concept of moments in statistics. Translating the concept into terms that most readers
are familiar with provides Equation (1.10).
( ( X ) )
K =
( ( X ) )
4
2 2
(1.10)
where K is the measure of kurtosis, and the remaining symbols are the
same as previously defined. It can be shown that Equation (1.10) is
equivalent to Equation (1.11).
K =
m4
m22
(1.11)
where m4 is the fourth moment and m2 is the second moment about the
mean. For the normal distribution, this value approaches 3 as the sample size increases. This is more evident in the following formulation of
kurtosis (Equation [1.12]), which is more useful when the sample size is
small, because it is corrected for the sample size.
13
3(n 1)2
X
n(n + 1)
K=

(1.12)
(n 1)(n 2)(n 3) (n 2)(n 3)
When n becomes large, the content of the first parentheses collapses

to Equation (1.10), and the value of second parentheses approaches 3.
In this formulation, the value of kurtosis for the normal distribution is 0
instead of 3.
Example 1.6 Calculate the kurtosis for the closing prices for Microsoft
stock from May 21 to July 2, 2015.
Solution 1.6
Table 1.1 provides the first, second, third, and fourth powers of deviations of values from the estimated mean, which are depicted as m1, m2,
m3, and m4. Calculate the kurtosis.
( X ) ) 30(54.8083) 1,644.249
(
K =
=
=
= 2.61937
(25.05448)
627.72
)
(
X
)
(
4
2 2
Standard Deviation of Kurtosis
In order to conduct a test of hypothesis regarding kurtosis, it is necessary

to use the standard error of the kurtosis as obtained from Equation (1.13).
K =
24n(n 1)2
(n 2)(n 3)(n + 3)(n + 5)
(1.13)
where
K is the estimated standard error of kurtosis because kurtosis is
a statistic, as explained in Definition 1.2. It is evident that only the
sample size affects the standard deviation of kurtosis.
Example 1.7 Calculate the standard deviation of kurtosis for the closing
prices for Microsoft stock from May 21 to July 2, 2015.
Solution 1.7
The formula for the standard deviation of kurtosis (Equation 1.13) involves only the sample size.
14
K =
24n(n 1)2
(n 2)(n 3)(n + 3)(n + 5)
24 30 (30 1)2
(30 2) (30 3) (30 + 3) (30 + 5)
24 30 841
605,520
=
= 0.69347 = 0.8327
28 27 33 35
873,180
Software Use
Stata calculates kurtosis using the command

where the names of the desired variables can be inserted before comma.
Stata uses Equation (1.11) to calculate kurtosis. Using the correction
factor will yield slightly different results when the sample size is small.
The Stata command summarize, which calculates both skewness and
kurtosis in addition to a host of other descriptive statistics, must be performed before attempting to test hypotheses about skewness or kurtosis.
It is necessary to use the option detail with the command summarize.
There does not appear to be a command in Stata to obtain the standard
deviation for kurtosis.
Example 1.8 Calculate the kurtosis for the closing prices for Microsoft
stock from May 21 to July 2, 2015 using Stata (Figure 1.8).
Figure 1.8 Stata command and output for obtaining skewness and
kurtosis
15
Solution 1.8
Hypothesis The actual value of the null hypothesis depends on whether
Equation (1.10) or (1.12) is used. In the case of the former, the null
hypothesis is equal to 3 and in the case of the latter, it is 0.
H0 : K = 3
H0 : K = 0
or
The direction of the sign for the alternative hypothesis depends on

whether the claim is that the data is more pointed (use the sign >) or less
pointed (use the sign <) than the normal distribution. When the purpose of the test of hypothesis is to verify the normality of the data the
alternative hypothesis should be two-tailed, and thus, use the not equal
sign. Only one of the following alternative hypotheses is applicable, depending on the claim of the researcher. Only the case where Equation
(1.12) is used is presented.
H1 : K > 0
H1 : K < 0
H1 : K 0
Test Statistic
The test statistic is simply a Z score or Z statistic.

Z Sk =
K 0
(1.14)
where Z Sk is the test statistic for testing normality using kurtosis. The
value 0 in the numerator reflects the fact that the kurtosis for the normal
distribution is 0, which is the null hypothesis. When Equation (1.10) is
used instead of the Equation (1.12), the expected value of the kurtosis is
3 and not 0; therefore, Equation (1.14) should be adjusted accordingly.
Reject the null hypothesis when the p value is small enough.
Example 1.9 Test the hypothesis that the distribution for the closing
prices of Microsoft stock is either flat or pointed compared to a normal
distribution.
16
Solution 1.9
The null and alternative hypotheses are:
H0: Distribution is normal
H1: Distribution is either flat

or pointed
When using Equation (1.10), the value of kurtosis for a normal distribution is 3; so the hypotheses can be written as
H0 : K = 3
or
H1 : K 0
Because there is no a priori knowledge regarding the shape of the

price of Microsoft stock, the alternative hypothesis is two-tailed. First,
calculate the test statistic presented in either Equation (1.14) or the alternative using 0 instead of 3. Use the value of K = 2.619369 that was
obtained in Example 1.8 and the value of 0.8327 for from Example
K
1.7. The 3 in the numerator is from the hypothesis.

Z Sk =
K 3 2.619369 3
=
= 0.4571
0.8327
K
The corresponding p value for the test statistic for a one-tailed test is
0.323778. However, as the stated alternative hypothesis is two-tailed, it
is necessary to double the p value and obtain 0.6476. The p value is not
small enough to reject the null hypothesis of normality. Verify the accuracy of the result using Stata.
Software Use
It is possible to obtain a slightly different test statistic for skewness and

kurtosis using Stata owing to the slightly different computational technique used by the software. The software only reports the number of
observations and the p values for skewness and kurtosis while one would
expect the values of these statistics to be displayed as well (see Figure 1.9).
prices for Microsoft stock is either flat or pointed compared to a normal
distribution using Stata.
17
Solution 1.10
The Stata command and output that provide the p value corresponding
to the Z statistic for a test of kurtosis is depicted in Figure 1.9. Make
sure to issue the command summarize, detail first.
Figure 1.9 Stata command and output for the sktest test of kurtosis
The p value for kurtosis is too large to reject the null hypothesis.
Furthermore, the statistic for neither the skewness nor the kurtosis is
significant. The output also includes a joint chi-squared test for skewness and kurtosis, which is preferred to the individual tests unless the
specific statistic is of interest, as will be discussed in Chapter 1 of Volume II when addressing Bonferroni correction. The p value for the joint
statistic is also too high to reject the null hypothesis of normality. Thus,
there is a possibility that the closing prices of the Microsoft stock are
close enough to the values from a normal distribution.
The Stata software recommends using the ShapiroWilk (swilk) test
of normality first. If the null hypothesis of normality is rejected, use
sktest to determine whether skewness, kurtosis, or both are the source of
deviation from normality. The ShapiroWilk test belongs to the Kolmogorov type goodness of fit tests.
Testing Normality
When parametric inference is based on the requirement of normality, it
is necessary to test the data for normality. Another common application
of a normality test is in regression analysis, where the estimated residuals
are tested to verify conformity with normality. Yet there is no reliable
parametric test for normality. Graphical comparisons of a cumulative
distribution of observations versus a cumulative normal distribution are
informative but imprecise.
When the graph of data is skewed to the right or left and when it is
flat or pointed as compared to the normal distribution, the data is not
18
normally distributed. The Z statistic for testing skewness (Equation

[1.7]) or the pointedness of the data (Equation [1.14]) can be used to
test the normality of data.
There are several issues with using these two tests to test the null hypothesis that the distribution is normal. Unless both tests provide the
same conclusion (either reject or fail to reject the null hypothesis), it
would be inconclusive. The second problem is the fact that when several
tests are performed using the same data to make inference about the
same hypothesis, the probability of type I error increases, as will be discussed in Chapter 1 of Volume II when addressing Bonferroni correction.
A more powerful and more commonly used test is the ShapiroWilk test
demonstrated in Examples 1.5 and 1.10. The advantage of the sktest
command is that it performs tests of significance for both skewness and
kurtosis.
It is recommended to use sktest after the null hypothesis of normality is
rejected by tests such as ShapiroWilks or ShapiroFrancia to determine
whether the source of deviation from normality is skewness or kurtosis.
Kolmogorov Type Normality Tests

The Kolmogorov test is a test of goodness of fit. There are numerous tests
of goodness of fit, most notably the chi-squared methods, which are
used in various situations and applications. Chi-squared tests require
nominal scale data, while the Kolmogorov test can be applied to ordinal
scale data.
The Kolmogorov test is designed to compare the distribution functions of two populations when all the parameters of the populations are
known. One of the populations could have a specific distribution function, e.g., normal, which can be used as a benchmark to determine
whether the unknown distribution function of a population is similar to
that of the normal distribution function. Therefore, the Kolmogorov
test can be classified as either a one- or two-sample test. While the chisquared tests of goodness of fit are flexible enough to allow for some
parameters to be unknown, the Kolmogorov test cannot be applied unless all the parameters of the unknown distribution function are known.
19
Modifications to the Kolmogorov test, such as those by Lilliefors,

allow comparisons when some of the parameters of the population are
unknown and require estimation using samples. Consequently, the
Lilliefors test is useful in applied research and will be the one that is
demonstrated here. There are also different types of tests of goodness of
fit comparisons of probability distribution functions that use chisquared test statistics originated by Pearson.2
Lilliefors Normality Test
There are several nonparametric tests that determine if sample observations

could belong to a particular distribution based on their outcomes. The
Lilliefors test is one such test that does not require any distributional
assumption as long as the sample points are drawn at random. Therefore, it
can be used to test membership in any known distribution function category. The main advantage of the Lilliefors test of goodness of fit is that it
can be obtained from the sample statistics without the need for knowledge
of the parameters of the distribution function of the population.
Similar distribution functions behave the same. Kolmogorov suggested comparing the cumulative distribution functions of two distributions in order to determine whether they are the same. When the two
distribution functions are similar, the maximum distance between their
cumulative distribution functions should be less than a tolerable level.
One of the two distribution functions can be known-----for example, the
normal distribution function.
Calculating the Cumulative Distribution Functions
The original Kolmogorov test of normality requires knowledge of the

mean and the variance (i.e., the parameters) of the population from which
Pearson, K. 1900. X. On the Criterion that a Given System of Deviations

from the Probable in the Case of a Correlated System of Variables is such
that it can be Reasonably Supposed to have Arisen from Random Sampling. Philosophical Magazine Series 5 50(302): 157175.
20
the sample data are obtained. However, these parameters are usually
unknown. Lilliefors provides an alternative where the sample estimates
(i.e., statistics) are used instead of the parameters. Because this method is
more pragmatic, it will be used here. The modifications are more in the
testing of the hypothesis than in the computation of the test statistic.
Sample values are standardized using the sample mean and variance,
which are compared to the Z scores of the standard normal probability
distribution function. The test statistic consists of the maximum vertical
distance between the two probability distribution functions, as is the
case in the original Kolmogorov test.
To calculate the cumulative frequency, first create a frequency distribution for the sample data; make sure that the possible outcomes that
do not actually occur receive a frequency value of zero (0). There are
three choices for the next step. You may use the median, mean, or the
midpoint of the data (Equation [1.15]) when calculating the Z score,
because the mean and the median are identical for the normal distribution and the midpoint of the data is close to them, if not identical. Here
we use the median. Then calculate the standard deviation of the data;
you can either use the raw data using the conventional formula or use
the tabulated data with frequencies using Equation (1.16).3 Finally, calculate the Z scores (Equation [1.17]).
M = (Xmin + Xmax)/2
( fX )2
( fX )2
n 1
(1.15)
(1.16)
where f represents the observed frequencies and the Xs are the actual
observations. The next step is to obtain the Z score as in Equation
(1.17) based on the median instead of the mean and the standard deviation of the observed values (Equation [1.16]).
Z =
X M
Naghshpour, Statistics for Economics.
(1.17)
21
It is not necessary to place the estimated standard deviation inside

the absolute value signs, as by definition all values of the standard deviation are positive. These Z scores are used to obtain the observed cumulative frequency distribution, which is then compared to the cumulative
frequency distribution function of the standard normal distribution
function.
Hypothesis The claim of the Kolmogorov and Lilliefors tests is that the
distribution function of the population from which the sample data is
drawn is non-normal. Therefore, the null hypothesis is that the sample
is obtained from a population with a normal distribution. Failure to
reject the null hypothesis would indicate there is insufficient evidence to
refute that the population has a normal distribution function.
H0: The population from which the random sample is drawn has a
normal distribution
H1: The population from which the random sample is drawn has a
nonnormal distribution
Test Statistic
The test statistic is the largest absolute value of the difference between
the samples observed cumulative frequency distribution function and
the cumulative frequencies of the normal distribution function. It is
customary to show the cumulative frequencies of the observed values of
the sample by S X i . Similar to the cumulative frequencies of the observed
values of the sample, obtain the cumulative probability values corresponding to the Z scores from the standard normal distribution, which
is often shown as X i , which is pronounced phi. Find the absolute values of differences between X i and observed frequencies S X i . Customar , pronounced
ily, two such distances are obtainedthe one labeled as D
D tilde, in Equation (1.18) is the conventional formulation. An alternative formulation based on the lagged values of the sample cumulative
frequencies is labeled D and is shown in Equation (1.19).
=| S |
D
Xi
Xi
(1.18)
22
D = | X i S X i 1 |
(1.19)
The formula in Equations (1.18 and 1.19) can be applied to two population comparisons; as such, they are known as the Kolmogorov
Smirnov normality test, which will be discussed shortly. The largest val is compared to a tabulated value4 to test the null hypothesis of
ue of D
normality.
Example 1.11 Use the Lilliefors method to determine if the distribution
function of the closing prices for Microsoft stock is the same as that of a
normal distribution. Use sample data from May 21, 2015 to July 2,
2015.
Solution 1.11
Calculate the median, M, and the standard deviation (Equation [1.16])
needed for calculating the Z score. Table 1.2 depicts the computational
detail. Use the original data (not the data with frequencies) for the calculations.
Although the standard deviation can be obtained using the original
data, we use the formulation using the frequencies for practice. Because
the standard deviation can be obtained from the original data using
Stata and Excel, it is easy to verify the results. In order to calculate the
standard deviation, first find
( X )
by multiplying the stock prices by
the frequency, squaring them, and then summing the results. You
should get 63,771.21. Then find
( X )
by summing the product of
the frequency and the stock price, then squaring the sum. You should
get 1,382.89. The reason for multiplying the values by their frequencies
is that we are using the tabulated data instead of the raw data, for practice. Plug these numbers in to the following equation for the standard
deviation.
Pearson, E.S. and H.O. Hartley. 1976. Biometrika Tables for Statisticians.
Cambridge University Press: Cambridge.
( X )2
23
( X )2
n 1
(1,382.89)2
1,912,384.77
63,771.21
30
30
=
30 1
29
63,771.21
63,771.21 63,746.16
= 0.8638 = 0.9294
29
These calculations do use the formula for frequencies. Use the original data (not the data with frequencies) in Stata with the summarize
command to verify the results. The results from Stata are slightly different because of rounding off.
sum msft
Table 1.2 displays the values of the Z scores for the Microsoft stock,
their corresponding probability, the empirical frequencies, and the observed frequencies necessary to calculate the absolute distances D and D.
The second column in Table 1.2 displays the Microsoft data sorted
from smallest to largest, while the third column provides the corresponding frequencies under the heading f. The column titled phi contains the probabilities of the tail areas for the calculated Z scores from a
normal distribution. The column Sx is the cumulative frequencies of the
observed values. The column D tilde is calculated using Equation (1.18),
and D is calculated using Equation (1.19).
The detailed computation for the stock price of $45.65, which occurred on June 9 and June 25, 2015, is displayed below for reference.
Z =
X M
45.65 46.12
=
= 0.5054
0.93
The area corresponding to -0.5054 on the normal curve is shaded in

Figure 1.10 for your reference and is equal to 0.3066.
1
1
44.37
44.4
44.45
45.26
45.48
45.64
45.65
45.73
45.83
45.91
45.97
46.1
46.14
46.23
46.36
6/29/2015
7/2/2015
7/1/2015
6/26/2015
6/15/2015
6/24/2015
6/9/2015
6/8/2015
6/16/2015
6/23/2015
6/12/2015
6/19/2015
6/5/2015
6/22/2015
6/4/2015
44.15
6/30/2015
MSFT
Date
0.0333
0.0333
0.0333
0.0333
0.0667
0.0333
0.0333
0.0333
0.0667
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
Rel f
0.2582
0.1183
0.0215
0.0215
0.1614
0.2259
0.3120
0.4196
0.5057
0.5164
0.6885
0.9252
1.7967
1.8505
1.8828
2.1194
Z score
Table 1.2 Computations for the Kolmogorov/Lilliefors statistics
0.6019
0.5471
0.5086
0.4914
0.4359
0.4106
0.3775
0.3374
0.3066
0.3028
0.2456
0.1774
0.0362
0.0321
0.0299
0.0170
phi
0.6000
0.5667
0.5333
0.5000
0.4667
0.4000
0.3667
0.3333
0.3000
0.2333
0.2000
0.1667
0.1333
0.1000
0.0667
0.0333
Sx
0.0019
0.0196
0.0247
0.0086
0.0308
0.0106
0.0109
0.0041
0.0066
0.0694
0.0456
0.0108
0.0971
0.0679
0.0368
0.0163
D tilde
0.0352
0.0138
0.0086
0.0247
0.0359
0.0440
0.0442
0.0374
0.0732
0.1028
0.0789
0.0441
0.0638
0.0345
0.0035
24
46.44
46.59
46.61
46.72
46.85
46.86
46.9
46.92
47.23
47.42
47.45
47.61
6/11/2015
5/26/2015
6/10/2015
6/18/2015
6/3/2015
5/29/2015
5/22/2015
6/2/2015
6/1/2015
5/21/2015
5/28/2015
5/27/2015
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
0.0333
1.6030
1.4309
1.3986
1.1942
0.8607
0.8392
0.7961
0.7854
0.6455
0.5272
0.5057
0.3443
0.9455
0.9238
0.9190
0.8838
0.8053
0.7993
0.7870
0.7839
0.7407
0.7010
0.6935
0.6347
1.0000
0.9667
0.9333
0.9000
0.8667
0.8333
0.8000
0.7667
0.7333
0.7000
0.6667
0.6333
0.0545
0.0429
0.0143
0.0162
0.0614
0.0340
0.0130
0.0172
0.0074
0.0010
0.0268
0.0013
0.0211
0.0096
0.0190
0.0171
0.0280
0.0007
0.0204
0.0506
0.0407
0.0343
0.0601
0.0347

25
26
Figure 1.10 Normal distribution function depicting Z = 0.5054 and

the corresponding p value of 0.3066
There are 30 observations in the sample and if they were equally likely,
they would have had a probability of 1/30 of occurring. Because $45.65 and
$45.97 occur twice, their relative frequency is 2/30 = 0.06667. The cumulative probability for the value 45.97 is shown in column S X .
Cumulative observed frequency (f ) 45.97 = 0.0333 + 0.0333 + 0.0333
+ 0.0333 + 0.0333 + 0.0333 + 0.0333 + 0.0333 + 0.0333 + 0.0333 +
0.0333 + 0.0333 + 0.0667 = 0.4667
The Z score associated with 45.97 is 0.1614, and the corresponding
X i is 0.4359.
is
Therefore D
= | S |= 0.4359 0.4667 = 0.0308

D
Xi
Xi
The entire row corresponding to the earlier calculations and the cell
. value is shaded gray for visual effect. The rest of
with the maximum D
the values are calculated in the same way. The largest value of the distance between the theoretical and observed cumulative probability distribution function is 0.0971 belonging to July 1, 2015 when the closing
price of the stock was $45.45 (the value is shaded in Table 1.2). The
tabulated value of Lilliefors for n = 30 at = 0.05 is 0.159.5 Because the
Mason, A.L. and C.B. Bell. 1986. New Lilliefors and Srinivasan Tables
with Applications. Communications in StatisticsSimulation 15: 451467.
27
= 0.097 does not exceed the tabulated value,

calculated statistic of D
fail to reject the null hypothesis that the distribution of the population
from which the sample is drawn is normally distributed.
Alternative KolmogorovSmirnov Test of Normality

There are several alternatives to the Kolmogorov goodness of fit test.
One, which is very similar to the Lilliefors test, uses the same procedure
except that it uses lagged values of the observed cumulative frequency
distribution function, which is designated as D. Equations (1.18) for D

and (1.19) for D are reproduced for your convenience.
=| S |
D
Xi
Xi
(1.18)
D = | X i S X i 1 |
(1.19)
The subscript in Equation (1.19) instructs that the previous value,

known as the lag operator, should be used. D is the difference between
the ( Z i ) and S X i one row above it. The maximum value of
D = |0.3028 0.2000| = 0.1028 is shaded for visual effect.
Test Statistic
Smirnov suggests using the formula in Equation (1.20).6

|)
Z = n max(| D |,| D
(1.20)
The critical values for this Z statistic are provided by Smirnov and depicted in Table 1.3.7
Smirnov, N.V. 1948. Table for Estimating the Goodness of Fit of Empirical Distributions. Annals of Mathematical Statistics 19: 271281.
7
Smirnov, Table for Estimating the Goodness of Fit of Empirical Distributions.
28
Table 1.3 Critical values for the KolmogorovSmirnov test of

goodness of fit
If 0 Z < 0.27
p =1
If 0.27 Z < 1
p = 1
If 1 Z < 3.1
p = 2 (R R 4 + R 9 R 16 )
If Z 3.1
p=0
2.506628
(Q + Q9 + Q25)
Z
1.233701Z
where Q = e
where R = e2Z
as calculated before; however, the calculated

The statistic uses D and D
statistic is now compared to the earlier critical values.
Example 1.12 Test the normality of the closing prices for Microsoft
stock between May 21 and July 2, 2015 using the Kolmogorov
Smirnov test.
Solution 1.12
All the necessary preliminary calculations are displayed in Table 1.2.
The maximum value of D corresponds to a stock price of $45.64, which
occurred on June 24, 2015. The computation for the D statistic corresponding to this observation is shown.
D = | X i S X i 1 | = 0.3028 0.2000 = 0.1028
,
Calculate the test statistic Z, using the maximum value of D or D
which are shaded in gray in Table 1.2. In this case, D is greater than D
(0.1028 > 0.0971); so we use D in Equation (1.20).
Z = 30 0.1028 = 5.477226 0.1028 = 0.5626

Because the test statistic corresponds to the third row of the critical values from Table 1.3, the appropriate critical value is obtained from:
2.506628
When 0.27 Z < 1 p = 1
(Q + Q 9 + Q 25 )
Z
2
where Q = e 1.233701Z
2
Q = e 1.233701Z = e 1.233701(0.5626) = 0.020288

p =1
2.506628
(Q + Q 9 + Q 25 )
Z
29
2.506628
(0.020288 + 0.0202889 + 0.02028825 )
0.5626
= 1 0.0904 = 0.9096
Because the p value is not small enough, fail to reject the null hypothesis
of normality.
Software Use
To perform the KolmogorovSmirnov test in Stata, it is necessary to

perform the summarize command (abbreviated to three letters as is customary in Stata) to generate and store the sample mean referred to as
r(mean) in Stata and the sample standard deviation r(sd). The command
ksmirnov recalls these stored values making it unnecessary to type them.
Using the stored values, when possible, utilizes the double-precision
storage capability of the software. Double-precision storage allows 16
decimal place accuracy. The command ksmirnov is invoked as shown in
what follows.
Example 1.13 Determine whether the closing stock prices for Microsoft
between May 21 and July 2, 2015 are normally distributed using the
KolmogorovSmirnov test.
Solution 1.13
It is possible to automate the input for the KolmogorovSmirnov test
using the stored output within Stata. Because the results of the mean
and standard deviation from the summarize command are stored, they
can be retrieved and utilized in computing the Z score necessary for the
command ksmirnov instead of calculating the Z score and inserting the
result after the = sign in the command. Type
sum msft
ksmirnov msft = normal((msft-r(mean))/r(sd))
in order to run the ksmirnov test using the stored values. The outputs
from this command are shown in Figure 1.11.
30
Figure 1.11 Stata command for the KolmogorovSmirnov normality

test for Example 1.13
The detailed information about the D statistic and the corresponding p values indicate that the hypothesis of a normal distribution cannot
be rejected. The KolmogorovSmirnov test also fails to refute that the
data has a normal distribution. Had the normality tests resulted in rejecting the null hypothesis of a normal distribution, it would have been
necessary to conduct a test to determine whether skewness or kurtosis is
the reason for the deviation from normality. Refer to Examples 1.5 and
1.10 for details on how to test for skewness and kurtosis in Stata.
Large Sample Approximation
When the sample size is sufficiently large, the large sample approximation can be used. The large sample approximation also affects the critical
values without necessitating an alternative or extra computation. Miller
provides the table of critical values for the KolmogorovSmirnov test.8
Approximate critical values for samples greater than 40 are provided for
some of the commonly used levels of significance:
Miller, L.H. 1956. Table of Percentage Points of Kolmogorov Statistics.

Journal of the American Statistical Association 51: 111121.
0.01
0.05
0.10
0.15
1.63
n
1.36
n
1.22
n
1.14
n
31
Durbin provides the following benchmarks for comparison when the

sample size exceeds 100.9
0.01
0.05
0.10
0.20
1.035
n
0.895
n
0.819
n
0.741
n
ShapiroWilk Test of Normality

The ShapiroWilk test statistic is based on ordered data and belongs to
the family of order statistics. The only requirement is that the sample
points need to be drawn at random. The test is based on the differences
of the two observations furthest apart, then the next such pair, until the
difference of the two in the middle are compared. This is not much different from the other Kolmogorov-type goodness of fit tests. One major
difference, however, is the use of coefficients (ai) computed by Shapiro
Wilk (see Equation [1.21]).10
Hypothesis
H0: The distribution function of the population from which the data was drawn at random is normal
H1: The distribution function of the population from which the data was drawn at random is NOT normal
Durbin, J. 1975. Kolmogorov-Smirnov Tests When Parameters are Estimated with Applications to Tests of Exponentiality and Tests on Spacings. Biometrika 62(1): 522.
10
Shapiro, S.S. and M.B. Wilk. 1965. An Analysis of Variance Test for
Normality (Complete Samples) Biometrika 52(3/4): 591611. Tables on
pages 603604.
32
Test Statistic
The ShapiroWilk test (Equation [1.21]) calculates the correlation between the ordered expected values of the standard normal distribution
and the ordered values of the normalized observed data. The correlation
coefficient for values from the same distribution function is 1.
W =
1 K
ai ( X (n i +1) X (i ) )
D i =1
(1.21)
)2 , a , a , ..., a are coefficients from the Shapiro

where D = ( X
1
2
k
Wilk table, and K is approximately n/2. The ShapiroWilk test statistic

is actually the square of the Pearson correlation coefficient between the
order statistic and the coefficient ai calculated by Shapiro and Wilk, which
represents the order statistic of a normal distribution. When the test
statistic W is close to 1, the sample values resemble those of the normal
distribution; thus, the null hypothesis of normality cannot be rejected.
The further the value of W is from 1, the more probable it is that the
sample points do not belong to a normal distribution. Tabulated values
of the ShapiroWilk critical values are available at Pearson and
Hartley.11
Example 1.14 Use the ShapiroWilk test to determine whether the
closing prices of Microsoft stock are distributed normally.
Solution 1.14
There are 15 pairs for the 30 observations when the largest value is
matched with the smallest value for all possible values. The values for ai
are obtained from Shapiro and Wilk.12 The rest of the values are computed. The values of X (i) are sorted in ascending order while the values
of X (ni+1) are sorted in descending order for ease of matching, and computations as depicted in Table 1.4.
11
Pearson, Biometrika Tables for Statisticians.

Shapiro, An Analysis of Variance Test for Normality (Complete Samples).
12
33
Table 1.4 Calculations for the ShapiroWilk test

i
Xi
X (ni+1)
X (ni+1) X (i)
ai
a i (X (ni+1) X (i))
44.15
47.61
3.46
0.4254
1.471884
44.37
47.45
3.08
0.2944
0.906753
44.40
47.42
3.02
0.2487
0.751073
44.45
47.23
2.78
0.2148
0.597144
45.26
46.92
1.66
0.1870
0.31042
45.48
46.90
1.42
0.1630
0.23146
45.64
46.86
1.22
0.1415
0.17263
45.65
46.85
1.20
0.1219
0.14628
45.65
46.72
1.07
0.1036
0.110852
10
45.73
46.61
0.88
0.0862
0.075856
11
45.83
46.59
0.76
0.0697
0.052972
12
45.91
46.44
0.53
0.0537
0.028461
13
45.97
46.36
0.39
0.0381
0.014859
14
45.97
46.23
0.26
0.0227
0.005902
15
46.10
46.14
0.04
0.0076
0.000304
4.876849
The first step in calculating W is the equation

K
( n i +1)
X (i ) ) = ( 04.254 )( 47.61 44.15 ) + ( 0.2944 )
ai ( X
i =1
47.45
44.37
(
) + ... + ( 0.0076 )( 46.14 46.10 ) = 4.87689
The outcome matches the amount shown at the bottom of the last
column in the Table 1.4. Next, calculate D and insert it into the equation for W along with the number calculated in the previous step. D is
calculated by subtracting the mean (46.10) from each observation and
then adding all the squared results. Note that D here is different from
the D used in KolmogorovSmirnov test.
)2 = ( 44.15 46.10 ) + ( 44.37 46.10 )

D = ( X
2
+ ... + ( 47.61 46.10 ) = 25.05448

2
Then plug the results from D and 4.87689 (from the earlier calculation)
into the equation for W.
34
1 K
W = ai ( X (n i +1) X (i )
D i =1
(4.87689)2 23.78405
=
= 0.949293
25.05448 25.05448
The calculated statistic, W = 0.949293, is between the tabulated values

of 0.939 and 0.967 corresponding to 30 observations from the Shapiro
Wilk table,13 which corresponds to a p value of 0.10 < < 0.5. Because the
p value is not small enough, fail to reject the null hypothesis that the data
were obtained from a population with a normal distribution function.
Software Use
The command swilk in Stata performs the W test for 4 n 2,000

observations, and sfrancia performs the modified version W for
5 n 5,000.
swilk varlist
sfrancia varlist
Stata recommends using sfrancia unless the data are grouped or aggregated.
Example 1.15 Use Stata to conduct the ShapiroWilk test to determine
whether the closing prices of Microsoft stock are distributed normally
(Figure 1.12).
Figure 1.12 Stata commands and outputs for the ShapiroWilk and
ShapiroFrancia tests
13
Pearson, Biometrika Tables for Statisticians.
35
Solution 1.15
In neither test, the p value is small enough to reject the null hypothesis
that the data were obtained from a population with a normal distribution function. The advantage of using the software is the ability to
obtain the exact p value. The ShapiroWilk and ShapiroFrancia tests
belong to a family of tests known as goodness of fit tests developed by
Kolmogorov.14
Test of Normality of Regression Residuals

One of the uses of normality tests is to determine whether the estimated
residuals of the regression have a normal distribution function. The data
are regression residuals, and the hypothesis is the same as ShapiroWilk,
as mentioned previously.
Example 1.16 The following data in Table 1.5 provide information on
the quantity of beer consumed (QBeer), price of beer (PBeer), quantity of
wine consumed (QWine), price of wine (PWine), quantity of hard liquor
consumed (QLiquor ), median income (IMedian), and mean income (IMean),
from 1995 to 2010 in the United States. Regress QBeer on PBeer and IMean.
Determine whether the estimated residuals have a normal distribution
function as required by the theory. (This example is from Regression for
Economics.15)
Table 1.5 Beer consumption and price for years 19952010
14
Year
QBeer
1995
1996
1997
1998
22.47
22.51
22.37
22.52
PBeer
0.81
0.84
0.84
0.86
IMean
44,938
47,123
49,692
51,855
PWine
4.57
4.93
5.17
5.07
QWine
1.70
1.77
1.79
1.81
IMedian
QLiqour
34,076
1.35
35,492
1.35
37,005
1.34
38,885
1.33
(Continued)
Kolmogorov, A.N. 1933. Sulla Determinazione Empirica di una Legge

di Distribuzione. Giornale dellIstituto Italiano degli Attuari 4: 8391.
15
Naghshpour, S. 2016. Regression for Economics. New York, NY: Business
Expert Press.
36
Table 1.5 (Continued)

Year
QBeer
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
22.74
22.72
22.87
22.98
22.79
22.93
22.70
23.00
23.07
22.98
22.34
22.00
PBeer
IMean
0.88
0.92
0.96
0.99
1.01
1.07
1.09
1.11
1.12
1.16
1.21
1.23
54,737
57,135
58,208
57,852
59,067
60,466
63,344
66,570
67,609
68,424
67,976
67,530
PWine
5.24
5.41
5.96
6.23
6.39
6.92
7.77
7.90
8.55
9.45
10.07
9.65
QWine
1.85
1.90
1.88
2.03
2.08
2.15
2.17
2.22
2.27
2.27
2.27
2.30
IMedian
40,696
41,990
42,228
42,409
43,318
44,334
46,326
48,201
50,233
50,303
49,777
49,445
QLiqour
1.35
1.38
1.38
1.40
1.44
1.48
1.52
1.57
1.59
1.63
1.64
1.66
Source: Beer Institute, Brewers Almanac 2010: Per Capita Consumption of Beer by State
19942010. US Census Bureau, Table H-6: RegionsAll Races by Median and Mean Income:
19752010. Bureau of Labor Statistics, Consumer Price IndexAverage Price Data: Malt
beverages, all types, all sizes, any origin, per 16 oz.
Solution 1.16
The results are shown in Figure 1.13 depicting the Stata output. After
running the regression, the residual is stored in the variable errorhat for
use in the ShapiroWilk test of randomness. The Stata commands used
to conduct the swilk and sfrancia tests following a regression are as
follows:
regress depvar indepvars
predict errorhat, residual
swilk errorhat
sfrancia errorhat
where depvar is the dependent variable and indepvars are the independent variables.
The p values for the ShapiroWilk and ShapiroFrancia statistics for
the test of normality are not small enough; therefore, we fail to reject the
null hypothesis of normality. The estimated residuals have a normal
distribution function.
37
Figure 1.13 Stata output of regression of QBeer on PBeer and IMean, and
the runs test of randomness
Index
Asymptotic relative efficiency (ARE)
chi-squared test, 76
definition of, xviii
Fishers Exact test, 115
KolmogorovSmirnov two-sample
test, 107
MannWhitney U Test, 86
median sign test, 65
Wilcoxon signed-rank test, 73
Binomial distribution function, 59,
6364, 93
Binomial test, 5758
Bonferroni correction, 11
Categorical data, definition of, xvii
Central Limit Theorem (CLT), xv
Chi-squared distribution function,
105, 106
Chi-squared test, 7376, 88
asymptotic relative efficiency, 76
hypothesis, 7475
test statistic, 7576
Cochran Q test, 91
Consistency, definition of, xxiv
Continuity correction, 4856
Correction factor, 5
Cumulative distribution function,
1921, 98100
Cumulative frequency, 99101
Dichotomous data, definition of, xvii
Dichotomous measurement scale,
107
Distribution-free methods, xi
Effect size
Efficiency, definition of, xxiv

contingency table setup for, 108
hypothesis, 109
large sample approximation,
113115
software use, 112113
Goodness of fit tests
one-sample, 337
kurtosis test, 1117
normality test, 1737
skewness test, 39
two-samples, 97116
KolmogorovSmirnov twosample test, 97107
Goodness of fit tests, 73. See also
specific tests
Hypergeometric distribution
function, 107, 108
Inferential statistics, xiii
Interval scale, definition of, xvi
KolmogorovSmirnov test, 2731
one-sample
large sample approximation, 30
31
software use, 2930
statistic, 2729
two-sample, 97107
computations for, 104
hypothesis, 98
106107
relative asymptotic efficiency, 107
118
INDEX
KolmogorovSmirnov (Continue)
software use, 105106
statistic, 98105
Kolmogorov test, 1827
cumulative distribution functions,
1921
Lilliefors normality test, 19
Ksmirnov, 105
Kurtosis test, 1117
definition of, xx, 12
software use, 1415, 1617
standard deviation of, 1314
statistic, 1516
Large sample approximation
KolmogorovSmirnov test
one-Sample, 3031
two-sample test, 106107
randomness tests, 4950
WaldWolfowitz runs test, 48
Leptokurtic, xx, 11
Likert scale, definition of, xvii
Lilliefors normality test, 19
Location inference, one-sample
chi-squared test, 7376
hypothesis, 7475
introduction, 57
hypothesis, 58
software use, 6264
statistic, 5962
effect size, 7273
hypothesis, 66

7072
software use, 70
statistic, 6670
MannWhitney U Test, 7995, 97
alternative tests to, 8895
McNemar Test, 9095
median test, 8890
data and computations for, 82
effect size, 86
hypothesis, 80
medians differences, confidence
interval for, 8788
software use, 84
statistic, 8083
McNemar Test, 9095
contingency table for, 92
hypothesis, 92
software use, 9495
statistic, 9294
Median, differences, confidence
interval for, 8788
Median sign test, 5765, 8889, 113
hypothesis, 58
statistic, 5962
Negative kurtosis, xx, 11
Nominal data, definition of, xvii
Nonparametric statistics, xxiixxv
analysis, xi
Normal distribution functions, 4
Normality test, 1737
deviations from, xixxx
KolmogorovSmirnov test, 2731
Kolmogorov test, 1827
of regression residuals, 3537
ShapiroWilk test, 3135
INDEX
One-sample location inference. See

Location inference, onesample
Order statistics, 57
Ordinal scale, definition of, xvi
Paired samples analysis, 90
Parameter, definition of, xiv
Parametric statistics, xiiixv
limitations of, xviiixix
Parametric test, xiv
Pearson correlation coefficient, 32
Pitman efficiency. See Asymptotic
relative efficiency (ARE)
Platykurtic, xx, 11
Point estimates, xxiii
Population, definition of, xiii
Positive kurtosis, xx, 11
Positive serial correlation, 39
Power of a test, xii
Randomness tests, 3956
continuity correction, 4856
additional uses, 5556
historic mean or median, use of,
5255
50
software use, 5152
introduction, 3941
serial correlation, 4148
one-sample runs test, 41
WaldWolfowitz runs test,
4148
Ratio scale, definition of, xv
Regression residuals, normality test
of, 3537
Relative efficiency, of hypothesis test,
xviii
Robust test, xi
definition of, xixii
Runs test. See Randomness tests
119
Sample, definition of, xiiixiv

Serial correlation, 40, 4148
hypothesis, 31
software use, 3435
statistic, 3234
Sign test, 91. See also Median sign
test
Skewness test, 39
definition of, 4, 8, 9, xx
hypothesis, 89
standard deviation of, 78
statistic, 9
Standard errors, 8
Stata software
KolmogorovSmirnov test
one-sample, 2930
two-sample, 105106
kurtosis test, 1415, 1617
McNemar Test, 9495
median test, 8990
randomness tests, 5152
skewness test, 8, 1011
WaldWolfowitz runs test,
4547
Statistics, definition of, xiv
Tests of goodness of fit. See
Goodness of fit tests
Trend analysis, 41
Type I error, definition of, xii
Type II error, definition of, xiixiii
Unbiasedness, definition of, xxiv
van der Waerden normal scores test,
88
120
INDEX
WaldWolfowitz runs test, 4156,

88
hypothesis, 42
software use, 4547
statistic, 4244
WilcoxonMannWhitney test, 79

effect size, 7273
hypothesis, 66
software use, 70
statistic, 6670
Wilcoxon two-sample rank-sum test,
7980
OTHER TITLES FROM THE ECONOMICS COLLECTION

Philip Romero, The University of Oregon and
Jeffrey Edwards, North Carolina A&T State University, Editors
U.S. Politics and the American Macroeconomy by Gerald T. Fox

Seeing the Future: How to Build Basic Forecasting Models by Tam Bang Vu
The Economics of Civil and Common Law by Zagros Madjd-Sadjadi
Innovative Pricing Strategies to Increase Prots, Second Edition by Daniel Marburger
Business Liability and Economic Damages by Scott Gilbert
How Strong is Your Firms Competitive Advantage, Second Edition by Daniel
Marburger
Eastern European Economies: A Region in Transition by Marcus Goncalves and Erika
Cornelius Smith
Health Financing Without Decits: Reform That Sidesteps Political Gridlock by Philip
Romero and Randy Miller
Central and Eastern European Economies: Perspectives and Challenges by Marcus
Goncalves and Erika Cornelius Smith
Regression for Economics, Second Edition by Shahdad Naghshpour
A Primer on Nonparametric Analysis: Volume II by Shahdad Naghshpour
Announcing the Business Expert Press Digital Library

Concise e-books business students need for classroom and research
This book can also be purchased in an e-book collection by your library as
a one-time purchase,
that is owned forever,
allows for simultaneous readers,
has no restrictions on printing, and
can be downloaded as PDFs from within the library community.
Our digital library collections are a great solution to beat the rising cost of textbooks. E-books
can be loaded into their course management systems or onto students e-book readers.
The Business Expert Press digital libraries are very affordable, with no obligation to buy in
future years. For more information, please visit www.businessexpertpress.com/librarians. To
set up a trial in the United States, please email sales@businessexpertpress.com.

Chapter 1 PDF

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Chapter 1 PDF

Hochgeladen von

Copyright:

Verfügbare Formate

A Primer on

A Primer on Nonparametric Analysis, Volume I

First published in 2016 by

One-Sample Tests ........................................................ 1

Chapter 1 Goodness of Fit Tests ....................................................... 3

false. In other words, when a particular alternative hypothesis is true, the

When parametric methods are utilized inappropriately (such as

Conventionally, the topic of statistics deals with parametric statistics.

Naghshpour, S. 2016. Statistics for Economics. New York, NY: Business

Theorem I.1 Central Limit Theorem (CLT)

1. The distribution function of can be approximated by the normal distribution.

A ratio scale provides meaningful use of the ratio of measurements in

In an interval scale, the differences of the values are meaningful.

The least restrictive scale in terms of requirements is the nominal

Limitations of Parametric Statistics

tional requirements of the prescribed analysis. The most commonly used

Deviations from Normality

not symmetric is either negatively skewed, as in Figure I.1, or positively

Figure I.1 Comparison of a negatively skewed distribution with

Figure I.2 Comparison of a positively skewed distribution with normal

Figure I.3 Comparison of negative kurtosis (platykurtic or flatter)

Figure I.4 Comparison of positive kurtosis (leptokurtic or pointed)

Sometimes, parametric methods cannot be applied because there is

Inference with Nonparametric Statistics

Inferential statistics using nonparametric statistics is similar to those of

State the null and alternative hypotheses

Sample statistics are used as estimators of population parameters. Because

Definition I.18 Unbiasedness

It can be shown that the sample mean ( ), variance ( ), and proportion

Definition I.19 Consistency

A point estimator is a consistent estimator if its variance gets smaller as

Definition I.20 Efficiency

A point estimator is a more efficient estimator if it has a smaller variance. If

Naghshpour, S. 2016. Statistics for Economics. New York, NY: Business

Goodness of Fit Tests

A PRIMER ON NONPARAMETRIC ANALYSIS, VOLUME I

Figure 1.1 Normal distribution with mean = and variance = 2

Populations with identical means and variances do not necessarily have

Naghshpour, S. 2016. Statistics for Economics. New York, NY: Business

GOODNESS OF FIT TESTS

Figure 1.2 Comparison of negative skewness with a normal distribution

Figure 1.3 Comparison of positive skewness with a normal distribution

is the estiwhere Sk is the measure of skewness, X is the observation,

n is the sample size.

A PRIMER ON NONPARAMETRIC ANALYSIS, VOLUME I

GOODNESS OF FIT TESTS

Table 1.1 (Continued)

Calculate the skewness.

0.35987067 0.35987067 0.35987067

Standard Deviation of Skewness

A PRIMER ON NONPARAMETRIC ANALYSIS, VOLUME I

where Sk is the estimated standard error of skewness,which should not

GOODNESS OF FIT TESTS

A PRIMER ON NONPARAMETRIC ANALYSIS, VOLUME I

In the context of a test of hypothesis, the formula can be expressed as:

Because there is no a priori knowledge regarding the shape of the

GOODNESS OF FIT TESTS

A PRIMER ON NONPARAMETRIC ANALYSIS, VOLUME I

Figure 1.6 Comparison of negative kurtosis (platykurtic or flatter)

Figure 1.7 Comparison of positive kurtosis (leptokurtic or pointed)

GOODNESS OF FIT TESTS

When n becomes large, the content of the first parentheses collapses

Standard Deviation of Kurtosis