Reading 11- LOS F (Part 2): Q8 class, 2008, style, least

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8. the four caveats of regression analysis listed by Standish, the least accurate is:

A)   the relationships of variables change over time.

B)   the choice to use a t-statistic or F-statistic for a forecast confidence interval is arbitrary.

C)   if the error terms are heteroskedastic the test statistics for the equation may not be reliable.

D)   if the error terms are correlated with each other over time the test statistics may not be reliable.

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The correct answer was B)

The t-statistic is used for constructing the confidence interval for the forecast. The F-statistic is not used for this purpose. All of the other possible shortfalls listed are valid.