Question #100
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 48
Status: Unattempted
Part of Context Group: Q99-100
Shared Context
Question
Assuming (for this question only) that the F-test was significant but that the t-tests of the independent variables were insignificant, this would most likely suggest:
Answer Choices:
A. conditional heteroskedasticity
B. serial correlation
C. multicollinearity. Quin Tan Liu, CFA, is looking at the retail property sector for her manager. She is undertaking a top down review as she feels this is the best way to analyze the industry segment. To predict U.S. property starts (housing), she has used regression analysis. Liu included the following variables in her analysis: Average nominal interest rates during each year (as a decimal) Annual GDP per capita in $'000 Given these variables the following output was generated from 30 years of data:
Explanation
When the F-test and the t-tests conflict, multicollinearity is indicated.
(Module 1.3, LOS 1.j)
Quin Tan Liu, CFA, is looking at the retail property sector for her manager. She is
undertaking a top down review as she feels this is the best way to analyze the industry
segment. To predict U.S. property starts (housing), she has used regression analysis.
Liu included the following variables in her analysis:
Average nominal interest rates during each year (as a decimal)
Annual GDP per capita in $'000
Given these variables the following output was generated from 30 years of data:
Exhibit 1 – Results from Regressing Housing Starts (in Millions) on Interest Rates and
GDP Per Capita
Coefficient
Standard Error
T-statistic
Intercept
0.42
3.1
Interest rate
−1.0
−2.0
GDP per capita
0.03
0.7
ANOVA
df
SS
MSS
F
Regression
2
3.896
1.948
21.644
Residual
27
2.431
0.090
Total
29
6.327
Observations
30
Durbin-Watson
1.22
Exhibit 2 - Critical Values for F-Distribution at 5% Level of Significance
Degrees of Freedom for
the Denominator
Degrees of Freedom (df) for the Numerator
1
2
3
26
4.23
3.37
2.98
27
4.21
3.35
2.96
28
4.20
3.34
2.95
29
4.18
3.33
2.93
30
4.17
3.32
2.92
31
4.16
3.31
2.91
32
4.15
3.30
2.90
The following variable estimates have been made for 20X7:
GDP per capita = $46,700
Interest rate = 7%