Reading 11- LOS G : Q4 against, following, returns, determine, class

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4.An analyst is regressing fund returns against the return on the Wilshire 5000 to determine whether beta is equal to 1.0. The analyst is trying to determine whether the number of observations should be increased. Which of the following is a reason why the test will have higher power if the number of observations is increased? The:

A)   estimate of beta will be farther away from 1.0.

B)   standard error of the regression will be lower.

C)   mean squared error of the regression will be lower.

D)   constant of the regression will be closer to zero.

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The correct answer was B)

A larger number of observations will decrease the standard error of the regression which will increase the size of the test statistic if beta is different than 1.0.