CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

When multicollinearity is present in a linear regression, which of the following is true?

I. The residuals will be serially correlated.
II. The regression cannot be estimated.
III. The interpretation of the regression is problematic.
IV. The t-statistics will be too large.
Correct Answer: III

The interpretation of the regression is problematic, but the regression can be estimated. The t-statistics may decrease substantially when multicollinearity is present, yet the r-squared may remain high.

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