- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 7. Introduction to Linear Regression
- Subject 6. Prediction Using Simple Linear Regression and Prediction Intervals

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**CFA Practice Question**

Which of the following statements is false with respect to the regression coefficient?

A. A very high value for the regression coefficient is an indication that the dependent variable is very sensitive to changes in the independent variable.

B. For a simple linear regression, we use n-2 degrees of freedom in order to conduct hypothesis tests on the regression coefficient.

C. As the standard error of the regression coefficient increases, the confidence interval built around the sample statistic will become tighter.

**Explanation:**As the standard error of the regression coefficient increases, the confidence interval built around the sample statistic will become even wider and the test results will reveal less about the true population parameter. In other words, where before a 95% confidence interval around the regression coefficient might have been, say 0.81 to 1.44, as the standard error increases, for the same sample statistic, the confidence interval may now be .55 to 1.89. Consequently, we now have a less clear idea as to what the true population parameter value is.

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