Question

Runs Test Assume that we use the runs test of randomness above and below the mean for the monetary value of Google at the end of each year for 20 years and we find that G = 2. What does that value tell us about the monetary value of Google?

Short answer

There are two possible natures of the trend that the monetary value of Google may follow:

There can be an upward trend in the monetary value of Google if all the initial values are above the mean and are followed by the values that are below the mean.

There can be adownward trend in the monetary value of Google if all the initial values are below the mean and are followed by the values that are greater than the mean.

Step-by-step solution

Given information

The runs test is used to check the randomness of a sequence of monetary values of Google for 20 years.

Runs test

The runs test is used to test whether the given sequence of monetary values of Google follow a random order when the values are divided based on whether they are above or below the mean.

Since the number of runs is equal to 2, the following two possibilities can occur:

If all of the numbers above the mean appear first and the values that are below the mean appear at the end, there may be a decreasing trend in the monetary worth of Google.

If all of the numbers below the mean value appear first and the values that are greater than the mean appear at the end, there may be anincreasing trend in the monetary worth of Google.