Question #118 - Reading 1 Multiple Regression

Reading: Reading 1 Multiple Regression

PDF File: Reading 1 Multiple Regression.pdf

Page: 58

Status: Unattempted

Correct Answer: A

Shared Context

- What can be said of the overall explanatory power of the model at the 5% significance? A) The coefficient of determination for the above regression is significantly higher than the standard error of the estimate, and therefore there is value to calendar trading. B) There is no value to calendar trading. C) There is value to calendar trading.

Question

Are Jessica and her son Jonathan correct in terms of the method used to correct for heteroskedasticity and the likely effects?

Answer Choices:

A. Neither is correct

B. Both are correct

C. One is correct

Explanation

Jessica is correct. White-corrected standard errors are also known as robust standard errors. Jonathan is correct because for financial data, generally, White-corrected errors are higher than the biased errors leading to lower computed t-statistics and, therefore, less frequent rejection of the null hypothesis (remember incorrectly rejecting a true null is Type I error).

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