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Null Hypothesis Examples

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In statistical analysis, the null hypothesis assumes there is no meaningful relationship between two variables. Testing the null hypothesis can tell you whether your results are due to the effect of manipulating ​a dependent variable or due to chance. It's often used in conjunction with an alternative hypothesis, which assumes there is, in fact, a relationship between two variables.

The null hypothesis is among the easiest hypothesis to test using statistical analysis, making it perhaps the most valuable hypothesis for the scientific method. By evaluating a null hypothesis in addition to another hypothesis, researchers can support their conclusions with a higher level of confidence. Below are examples of how you might formulate a null hypothesis to fit certain questions.

What Is the Null Hypothesis?

The null hypothesis states there is no relationship between the measured phenomenon (the dependent variable ) and the independent variable , which is the variable an experimenter typically controls or changes. You do not​ need to believe that the null hypothesis is true to test it. On the contrary, you will likely suspect there is a relationship between a set of variables. One way to prove that this is the case is to reject the null hypothesis. Rejecting a hypothesis does not mean an experiment was "bad" or that it didn't produce results. In fact, it is often one of the first steps toward further inquiry.

To distinguish it from other hypotheses , the null hypothesis is written as ​ H 0  (which is read as “H-nought,” "H-null," or "H-zero"). A significance test is used to determine the likelihood that the results supporting the null hypothesis are not due to chance. A confidence level of 95% or 99% is common. Keep in mind, even if the confidence level is high, there is still a small chance the null hypothesis is not true, perhaps because the experimenter did not account for a critical factor or because of chance. This is one reason why it's important to repeat experiments.

Examples of the Null Hypothesis

To write a null hypothesis, first start by asking a question. Rephrase that question in a form that assumes no relationship between the variables. In other words, assume a treatment has no effect. Write your hypothesis in a way that reflects this.

Other Types of Hypotheses

In addition to the null hypothesis, the alternative hypothesis is also a staple in traditional significance tests . It's essentially the opposite of the null hypothesis because it assumes the claim in question is true. For the first item in the table above, for example, an alternative hypothesis might be "Age does have an effect on mathematical ability."

Key Takeaways

• In hypothesis testing, the null hypothesis assumes no relationship between two variables, providing a baseline for statistical analysis.
• Rejecting the null hypothesis suggests there is evidence of a relationship between variables.
• By formulating a null hypothesis, researchers can systematically test assumptions and draw more reliable conclusions from their experiments.
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Quickonomics

Null Hypothesis

Definition of null hypothesis.

The null hypothesis is a statement that assumes there is no significant relationship or difference between two observed phenomena. It is typically denoted as H0 and is used in statistical hypothesis testing. The purpose of the null hypothesis is to serve as a baseline or default assumption, which is then tested against an alternative hypothesis to determine if there is evidence to support rejecting the null hypothesis.

Suppose a researcher wants to investigate whether there is a difference in test scores between students who receive tutoring and those who do not. The null hypothesis in this case would be that there is no difference in test scores between the two groups. In statistical terms, it would be stated as “the mean test scores of students who receive tutoring (μ1) is equal to the mean test scores of students who do not receive tutoring (μ2)”.

To test this null hypothesis, the researcher collects data on test scores from both groups and conducts a statistical analysis. If the analysis yields a significant result, it would suggest that there is evidence to reject the null hypothesis. On the other hand, if the result is not significant, it would indicate that there is not enough evidence to reject the null hypothesis, and the researcher would fail to find a difference in test scores between the groups.

Importance of Null Hypothesis

The null hypothesis is a fundamental component of hypothesis testing and statistical inference. It provides a basis for comparison and allows researchers to make conclusions based on the evidence at hand. By explicitly stating a null hypothesis, researchers can test their assumptions and determine whether there is a meaningful relationship or difference between variables. This helps to ensure that any observed effects or associations are not due to random chance or sampling error. Additionally, the concept of the null hypothesis fosters scientific rigor and encourages critical thinking in research.

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What Is a Null Hypothesis?

The alternative hypothesis.

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The Bottom Line

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Null Hypothesis: What Is It, and How Is It Used in Investing?

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A null hypothesis is a type of statistical hypothesis that proposes that no statistical significance exists in a set of given observations. Hypothesis testing is used to assess the credibility of a hypothesis by using sample data. Sometimes referred to simply as the “null,” it is represented as H 0 .

The null hypothesis, also known as “the conjecture,” is used in quantitative analysis to test theories about markets, investing strategies, and economies to decide if an idea is true or false.

Key Takeaways

• A null hypothesis is a type of conjecture in statistics that proposes that there is no difference between certain characteristics of a population or data-generating process.
• The alternative hypothesis proposes that there is a difference.
• Hypothesis testing provides a method to reject a null hypothesis within a certain confidence level.
• If you can reject the null hypothesis, it provides support for the alternative hypothesis.
• Null hypothesis testing is the basis of the principle of falsification in science.

Alex Dos Diaz / Investopedia

Understanding a Null Hypothesis

A gambler may be interested in whether a game of chance is fair. If it is, then the expected earnings per play come to zero for both players. If it is not, then the expected earnings are positive for one player and negative for the other.

To test whether the game is fair, the gambler collects earnings data from many repetitions of the game, calculates the average earnings from these data, then tests the null hypothesis that the expected earnings are not different from zero.

If the average earnings from the sample data are sufficiently far from zero, then the gambler will reject the null hypothesis and conclude the alternative hypothesis—namely, that the expected earnings per play are different from zero. If the average earnings from the sample data are near zero, then the gambler will not reject the null hypothesis, concluding instead that the difference between the average from the data and zero is explainable by chance alone.

A null hypothesis can only be rejected, not proven.

The null hypothesis assumes that any kind of difference between the chosen characteristics that you see in a set of data is due to chance. For example, if the expected earnings for the gambling game are truly equal to zero, then any difference between the average earnings in the data and zero is due to chance.

Analysts look to reject   the null hypothesis because doing so is a strong conclusion. This requires evidence in the form of an observed difference that is too large to be explained solely by chance. Failing to reject the null hypothesis—that the results are explainable by chance alone—is a weak conclusion because it allows that while factors other than chance may be at work, they may not be strong enough for the statistical test to detect them.

An important point to note is that we are testing the null hypothesis because there is an element of doubt about its validity. Whatever information that is against the stated null hypothesis is captured in the alternative (alternate) hypothesis (H 1 ).

For the examples below, the alternative hypothesis would be:

• Students score an average that is not equal to seven.
• The mean annual return of a mutual fund is not equal to 8% per year.

In other words, the alternative hypothesis is a direct contradiction of the null hypothesis.

Null Hypothesis Examples

Here is a simple example: A school principal claims that students in their school score an average of seven out of 10 in exams. The null hypothesis is that the population mean is not 7.0. To test this null hypothesis, we record marks of, say, 30 students ( sample ) from the entire student population of the school (say, 300) and calculate the mean of that sample.

We can then compare the (calculated) sample mean to the (hypothesized) population mean of 7.0 and attempt to reject the null hypothesis. (The null hypothesis here—that the population mean is not 7.0—cannot be proved using the sample data. It can only be rejected.)

Take another example: The annual return of a particular  mutual fund  is claimed to be 8%. Assume that the mutual fund has been in existence for 20 years. The null hypothesis is that the mean return is not 8% for the mutual fund. We take a random sample of annual returns of the mutual fund for, say, five years (sample) and calculate the sample mean. We then compare the (calculated) sample mean to the (claimed) population mean (8%) to test the null hypothesis.

For the above examples, null hypotheses are:

• Example A: Students in the school don’t score an average of seven out of 10 in exams.
• Example B: The mean annual return of the mutual fund is not 8% per year.

For the purposes of determining whether to reject the null hypothesis (abbreviated H0), said hypothesis is assumed, for the sake of argument, to be true. Then the likely range of possible values of the calculated statistic (e.g., the average score on 30 students’ tests) is determined under this presumption (e.g., the range of plausible averages might range from 6.2 to 7.8 if the population mean is 7.0).

If the sample average is outside of this range, the null hypothesis is rejected. Otherwise, the difference is said to be “explainable by chance alone,” being within the range that is determined by chance alone.

Traditional null hypothesis testing, consisting of a comparative statistical test for two competing theories, was suggested by Ronald Fisher in 1925.

How Null Hypothesis Testing Is Used in Investments

As an example related to financial markets, assume Alice sees that her investment strategy produces higher average returns than simply buying and holding a stock . The null hypothesis states that there is no difference between the two average returns, and Alice is inclined to believe this until she can conclude contradictory results.

Refuting the null hypothesis would require showing statistical significance, which can be found by a variety of tests. The alternative hypothesis would state that the investment strategy has a higher average return than a traditional buy-and-hold strategy.

One tool that can determine the statistical significance of the results is the p-value. A p-value represents the probability that a difference as large or larger than the observed difference between the two average returns could occur solely by chance.

A p-value that is less than or equal to 0.05 often indicates whether there is evidence against the null hypothesis. If Alice conducts one of these tests, such as a test using the normal model, resulting in a significant difference between her returns and the buy-and-hold returns (the p-value is less than or equal to 0.05), she can then reject the null hypothesis and conclude the alternative hypothesis.

How Is the Null Hypothesis Identified?

The analyst or researcher establishes a null hypothesis based on the research question or problem they are trying to answer. Depending on the question, the null may be identified differently. For example, if the question is simply whether an effect exists (e.g., does X influence Y?), the null hypothesis could be H 0 : X = 0. If the question is instead, is X the same as Y, the H 0 would be X = Y. If it is that the effect of X on Y is positive, H 0 would be X > 0. If the resulting analysis shows an effect that is statistically significantly different from zero, the null can be rejected.

How Is Null Hypothesis Used in Finance?

In finance , a null hypothesis is used in quantitative analysis. It tests the premise of an investing strategy, the markets, or an economy to determine if it is true or false.

For instance, an analyst may want to see if two stocks, ABC and XYZ, are closely correlated. The null hypothesis would be ABC ≠ XYZ.

How Are Statistical Hypotheses Tested?

Statistical hypotheses are tested in a four-step process . The first is for the analyst to state the two hypotheses so that only one can be right. The second is to formulate an analysis plan, which outlines how the data will be evaluated. The third is to carry out the plan and physically analyze the sample data. The fourth and final step is to analyze the results and either reject the null hypothesis or claim that the observed differences are explainable by chance alone.

What Is an Alternative Hypothesis?

An alternative hypothesis is a direct contradiction of a null hypothesis. This means that if one of the two hypotheses is true, the other is false.

A null hypothesis states there is no difference between groups or relationship between variables. It is a type of statistical hypothesis and proposes that no statistical significance exists in a set of given observations. “Null” means nothing.

The null hypothesis is used in quantitative analysis to test theories about economies, investing strategies, and markets to decide if an idea is true or false. Hypothesis testing assesses the credibility of a hypothesis by using sample data. It is represented as H 0 and is sometimes simply known as “the null.”

Correction—July 23, 2024:  This article was corrected to state accurate examples of null hypothesis.

National Library of Medicine. " Current Controversies: Null Hypotheses in Statistical Testing ."

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