The Interpretation of the Cox Test in Econometrics

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Abstract
This note seeks to clarify whether applications of Cox's (1961) modified likelihood ratio principle logically require a two- or one-tailed test. Logic requires the test of discrimination be one-tailed and the significance test for non-nested hypotheses be two-tailed. The significance test of a pair of non-nested hypotheses involves another extraneous hypothesis to which the cause of deviation from the tested hypothesis away from the alternative may be attributed.
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