- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 3. The standard error of estimate and the coefficient of determination

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**CFA Practice Question**

Which of the following statements most accurately describes the behavior of the standard error of the estimate (SEE) for a simple linear regression?

A. The SEE is heavily dependent on the mean value of the dependent variable.

B. The SEE only measures the historical deviation around the regression line.

C. The SEE will decrease as the number of observations increase.

**Explanation:**

The values for all the variables in the formula were computed using historical data.

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**User Contributed Comments**
5

User |
Comment |
---|---|

Yurik74 |
That's a good one! |

rhardin |
C is just as correct as B, so why is the answer only B? I see the "most accurate" part of the question, but something is either accurate or its not, and C is accurate from what I can see. Right? |

pikusa |
SEE is not going to decrease with more observations if model is not correctly specified. So C is not always correct. B is just a rephrased definition of SEE. |

chriswwu |
good point, pikuse. very subtle. |

JZERMENO |
A little bit tricky... |