Question #87 - Reading 1 Multiple Regression

Reading: Reading 1 Multiple Regression

PDF File: Reading 1 Multiple Regression.pdf

Page: 41

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Shared Context

- Based on a R2 calculated from the information in Table 2, the analyst should conclude that the number of analysts and ln(market value) of the firm explain: A) 18.4% of the variation in returns. B) 84.4% of the variation in returns. C) 15.6% of the variation in returns.

Question

What is the F-statistic for the hypothesis that all slope coefficients are not statistically significantly different from 0? And, what can be concluded from its value at a 1% level of significance?

Answer Choices:

A. F = 5.80, reject a hypothesis that both of the slope coefficients are equal to zero

B. F = 17.00, reject a hypothesis that both of the slope coefficients are equal to zero

C. F = 1.97, fail to reject a hypothesis that both of the slope coefficients are equal to zero

Explanation

The F-statistic is calculated as follows: F = MSR / MSE = 0.051 / 0.003 = 17.00; and 17.00 > 4.61, which is the critical F-value for the given degrees of freedom and a 1% level of significance. However, when F-values are in excess of 10 for a large sample like this, a table is not needed to know that the value is significant.

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