Submitted by: Akanksha Desale 68 Jerin Mathew 79 Shraddha Nandivadekar 90 Rohit Padalkar 91 Srushti Phule 102 Heena Sonavya

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2 INTRODUCTION:
Chi-square is a statistical test commonly used to compare observed data with data we would expect to obtain according to a specific hypothesis The formula for calculating chi-square (2) is:

=(O-E)/E
That is, chi-square is the sum of the squared difference between observed (o) and the expected (e) data (or the deviation, d), divided by the expected data in all possible categories. Types: 1. Goodness of Fit 2. Independence

Usage of chi-Square test

Chi-Square is a very versatile test used both as a Parametric and Non-Parametric measure. As a Parametric measure. As a Non-Parametric measure: 1. As a test of goodness of fit. 2. As a test of independence.

Features of Chi-Square Test

Value is never Negative Uni-model distribution 2 curve is a Pearsonian type III curve It is a normal deviate It is known as a non-parametric statistics Generally, Chi-square could be defined as

X =(O-E)/E

Conditions For The Application of Chi-Square Test

Sample size should be larger than 50 N individual items in the sample must have been drawn independently The class intervals or cells must be in the range of 5 to 20 The condition of linearity

Steps in Chi-Square Test

Formulate a Null and Alternate Hypothesis Cast the data in tabular form Find out the expected frequency for each of the categories Find out the Chi-Square value by applying the formula Find out the critical Chi-Square value Make a decision by comparing the calculated and critical Chi-square value

Chi-Square Test and Finance

A survey of 200 firms found the following evidence regarding profitability and market share. Do you find that data below gives you significant evidence to conclude that market share and profitability are related. Test the hypothesis at 0.01 level of significance.
Market share Profitability Upto 10% Low Medium High total 36 26 16 78 11-25 % 14 22 24 60 >25% 16 16 30 62 Total 66 64 70 200

Solution:
Ho: market share and profitability are not related H1: market share and profitability are related Observation Low (upto 10%) Observed value Expected value 36 66*78/200=25.74 X =(O-E)/E (36-25.74)/25.74=4.09

Low (11-25%)
Low (>25%)

14
16

19.80
20.46 24.96 19.20 19.84

1.699
0.972 0.043 0.048 0.743

Medium (upto 10%) 26 Medium (11-25%) Medium(>25%) 22 16

High (upto 10%)

High (11-25%) High (>25%)

16
24 30

17.30
21.00 21.70

4.677
0.429 3.175

Total x= 4.09 + 0.972+0.043+0.048+0.743+4.677+0.429+3.175 = 16.246 DF= (3-1)*(3-1) = 4 The critical value of for 4DF at 1% level is 13.277. as calculated value of is greater than critical value. Ho is rejected. H1 is accepted. There is relationship of market share and profitability