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Activity Number:
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57
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Type:
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Topic Contributed
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Date/Time:
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Sunday, August 2, 2009 : 4:00 PM to 5:50 PM
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Sponsor:
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Section on Government Statistics
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| Abstract - #305368 |
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Title:
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How Accurate Are the Power Calculations Relied on by the SEC in Its Regulatory Deliberations?
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Author(s):
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Efstathia Bura*+ and Joseph L. Gastwirth
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Companies:
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The George Washington University/Vertex Pharmaceuticals, Inc. and The George Washington University
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Address:
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2140 Pennsylvania Avenue NW , Washington, DC, 20052,
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Keywords:
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comparing two groups ; hypothesis tests ; indicator variables ; regression ; statistical power
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Abstract:
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In 2004 the SEC required that the boards of investment companies managing mutual funds have at least 75 percent of their membership and the Chairman be independent directors. It prepared a Power Study to respond to an industry sponsored report claiming that the returns of funds with independent Boards and Chairs are not superior to management funds, and concluded that the available studies do not have sufficient statistical power to detect a meaningful difference in the returns of the two types of funds. This paper demonstrates that the method used by the SEC is not correct, unless a very restrictive condition that rarely occurs in practice holds. We show that the expected power of studies of the same size as the ones examined by the SEC is actually lower than the corresponding results of the SEC. The relevance of both the SEC and industry studies to the main issue is also questioned.
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