Question #125
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 61
Status: Unattempted
Correct Answer: A
Question
An analyst runs a regression of portfolio returns on three independent variables. These independent variables are price-to-sales (P/S), price-to-cash flow (P/CF), and price-to-book (P/B). The analyst discovers that the p-values for each independent variable are relatively high. However, the F-test has a very small p-value. The analyst is puzzled and tries to figure out how the F-test can be statistically significant when the individual independent variables are not significant. What violation of regression analysis has occurred?
Answer Choices:
A. multicollinearity
B. conditional heteroskedasticity
C. serial correlation
Explanation
An indication of multicollinearity is when the independent variables individually are not
statistically significant but the F-test suggests that the variables as a whole do an excellent
job of explaining the variation in the dependent variable.