- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 5. Multiple Regression
- Subject 14. Model Specification and Errors in Specification

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**CFA Practice Question**

One model specification principle that is the opposite of data mining is:

B. The model should be grounded in cogent economic reasoning.

C. The functional form chosen for the variables in the regression should be appropriate given the nature of the variables.

A. The model should be parsimonious.

B. The model should be grounded in cogent economic reasoning.

C. The functional form chosen for the variables in the regression should be appropriate given the nature of the variables.

Correct Answer: B

Economic reasoning should be supplied behind the choice of variables and it should make sense.

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