CFA Practice Question

There are 208 practice questions for this study session.

CFA Practice Question

Which of the following statements least accurately describes the limitations associated with regression analysis?
A. Regression equations are based on sample data and thus are prone to large errors.
B. A discovery of a cause and effect through a regression may be exploited and thus eliminating that relationship.
C. If the regression assumptions are violated, the results of the regression outcome would be highly suspect.
Explanation: While regression equations may be based on sample data, and thus are prone to large "forecasting" errors, this cannot be regarded as a limitation of regression. While errors are expected to occur, we simply would like to make sure that they are random and that they average out to zero. Note this is true: Regression relations constructed using historic data may not hold in the future.

User Contributed Comments 3

User Comment
rhardin I thought that we were never to assume a cause and effect relationship from a regression, making B inaccurate as well.
gregsob2 agree with rhardin
theresa 'maybe'. we cannot assume but most likely we will find such a relationship. Besides, A is more wrong.
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