- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 10. Simple Linear Regression
- Subject 4. Hypothesis Testing of Linear Regression Coefficients
CFA Practice Question
In comparing the relation of company sales with GDP, your regression software provides the following output:
Is it possible that the regression coefficient is insignificant at the 95% level of confidence?
A. No since the t-statistic of 4.86 greatly exceeds the critical values of the insignificance acceptance range.
B. No, since the t-statistic is within the critical values of the insignificance acceptance range.
C. Yes, since the t-statistic is not large enough to be classified as insignificant.
Explanation: t-start = 0.85/0.175 = 4.86.
t-critical at df = 89 and α = 0.025 is 2.0.
Note that with a large sample size (over 30), we can begin to rely on the more familiar z-statistics.
User Contributed Comments 5
| User | Comment |
|---|---|
| zwer | Are we supposed to derive critical values ourselves during the exam? |
| volkovv | Unlikely (but we may). I think it is worthwhile to remember main critical values for 90%, 95%, 99% and the trends in values, such as critical values decrease when degrees of freedom increase |
| mcspaddj | The critical value for T in this case is the (coefficient - zero)/ standard error. My problem with this question is that there is always a theoretical possiblity of the variable being insignificant. Even if we had a t value approaching infinity, there will still be a possibility (albeit extremely small) chance of an error in rejecting/failing to reject the null hypothesis. |
| dblueroom | mcspaddj, we don't have to worry about that, leave that to statisticians. |
| ramdabom | I believe we could have used F-statistic as well |