Question #22
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 9
Status: Unattempted
Correct Answer: B
Question
An analyst regresses the return of a S&P 500 index fund against the S&P 500, and also regresses the return of an active manager against the S&P 500. The analyst uses the last five years of data in both regressions. Without making any other assumptions, which of the following is most accurate? The index fund:
Answer Choices:
A. regression should have higher sum of squares regression as a ratio to the total sum of squares
B. should have a higher coefficient on the independent variable
C. should have a lower coefficient of determination
Explanation
The index fund regression should provide a higher R2 than the active manager regression.
R2 is the sum of squares regression divided by the total sum of squares.