Reading 11- LOS F (Part 2): Q21 statements, second, class, simple, following

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21.Assume an analyst performs two simple regressions. The first regression analysis has an R-squared of 0.90 and a slope coefficient of 0.10. The second regression analysis has an R-squared of 0.70 and a slope coefficient of 0.25. Which one of the following statements is most accurate?

A)   Results of the second analysis are more reliable than the first analysis.

B)   The first regression has more explanatory power than the second regression.

C)   The influence on the dependent variable of a one unit increase in the independent variable is 0.9 in the first analysis and 0.7 in the second analysis.

D)   The influence on the dependent variable of a one unit increase in the independent variable is 0.7 in the first analysis and 0.9 in the second analysis.

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The correct answer was B)

The coefficient of determination (R-squared) is the percentage of variation in the dependent variable explained by the variation in the independent variable. The larger R-squared (0.90) of the first regression means that 90 percent of the variability in the dependent variable is explained by variability in the independent variable, while 70 percent of that is explained in the second regression. This means that the first regression has more explanatory power than the second regression. Note that the Beta is the slope of the regression line and doesn’t measure explanatory power.