- CFA Exams
- CFA Exam: Level II 2021
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 8. Limitations of regression analysis

###
**CFA Practice Question**

Which of the following statements is incorrect?

B. As agents become aware of known regression relationships, the predictive power of the relationships gets stronger.

C. The classical assumptions of linear regression may limit the validity of the relationship.

A. Regression relationships are volatile.

B. As agents become aware of known regression relationships, the predictive power of the relationships gets stronger.

C. The classical assumptions of linear regression may limit the validity of the relationship.

Correct Answer: B

As agents become aware of known regression relationships, the predictive power of the relationships gets stronger. This is not true. As the public becomes aware of the relationship, they may change their behavior, which makes the previous relationship obsolete. All other statements are correct.

###
**User Contributed Comments**
0

You need to log in first to add your comment.