- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 5. Multiple Regression
- Subject 16. The Economic Meaning of the Results of Multiple Regression Analysis

###
**CFA Practice Question**

Which of the following statements is (are) true with respect to the economic interpretations of regression results?

II. The greater the number of independent variables that are added to a regression model, the stronger will be the predictive power of the model.

III. The calculation of the standard error of estimate allows for the calculation of a range of possible values for the dependent variable, which is more meaningful than an absolute value.

IV. If the standard errors are underestimated in a model, then the regression coefficients may be portrayed as more significant than they really are.

I. As long as a regression model has a fairly high degree of coefficient of determination, the results should not be disputed.

II. The greater the number of independent variables that are added to a regression model, the stronger will be the predictive power of the model.

III. The calculation of the standard error of estimate allows for the calculation of a range of possible values for the dependent variable, which is more meaningful than an absolute value.

IV. If the standard errors are underestimated in a model, then the regression coefficients may be portrayed as more significant than they really are.

Correct Answer: III and IV

I is incorrect because even if a regression model has a fairly high degree of coefficient of determination, its results are useless unless there is an economic basis for the relationship.

II is incorrect because as more independent variables are added to a regression model, the adjusted R-square will decrease, thus indicating a lower predictive power of the model.

###
**User Contributed Comments**
0

You need to log in first to add your comment.