- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 7. Analysis of variance (ANOVA)

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**CFA Practice Question**

Which of the following statements is false with respect to the use and interpretation of the results from an analysis of variance (ANOVA) in regression analysis?

A. When computing the mean sum of squares of the error terms, we use degrees of freedom equal to n-(k+1), where k is the number of independent variables.

B. When there is only one independent variable involved, it is possible to extract the correlation coefficient from an ANOVA.

C. The F-statistic is simply the ratio of the regression sum of squares to the sum of squares of the error terms.

**Explanation:**The F-statistic is simply the ratio of the mean of the sum of squares of the regression to the mean of the sum of squares of the error terms. A very high value for F-statistic is an indication that the regression coefficients of the regression are quite significant.

When there is only one independent variable involved, it is possible to extract the correlation coefficient from an ANOVA. First, we compute the coefficient of determination, which is just the ratio of the regression sum of squares to the total sum of squares. Then, correlation is simply the square root of the coefficient of determination.

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