The Specification and Power of the Sign Test in Measuring Security Price Performance: Comments and Analysis

Terry L Zivney and Thompson, Donald J,

The Financial Review, 1989, vol. 24, issue 4, 581-88

Abstract: In a 1980 paper, Stephen J. Brown and Jerold B. Warner claim that, when applied to stock returns, the nonparametric sign test is misspecified and lacking in power. The authors show that this claim is incorrect and stems from confounding the mean and median of a distribution and from not correcting for the different natural levels of significance. After restating Brown and Warner's results, they find that, in general, the sign test appears as powerful and well-specified as the t-test; and when applied to market-adjusted returns and market- and risk-adjusted returns methodologies, the sign test appears more powerful than the t-test. Copyright 1989 by MIT Press.

Date: 1989
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