Reading 12- LOS i: Q1-3 class, 2008, following, likely, result

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1.Which of the following is least likely to result in misspecification of a regression model?
A)    Transforming a variable.
B)    Using a lagged dependent variable as an independent variable.
C)    Forecasting the past.
D)    Measuring independent variables with errors.

2.When constructing a regression model to predict portfolio returns, an analyst runs a regression for the past five year period. After examining the results, she determines that an increase in interest rates two years ago had a significant impact on portfolio results for the time of the increase until the present. By performing a regression over two separate time periods, the analyst would be attempting to prevent which type of misspecification?
A)    Forecasting the past.
B)    Using a lagged dependent variable as an independent variable.
C)    Incorrectly pooling data.
D)    Measuring independent variables with error.

3.When utilizing a proxy for one or more independent variables in a multiple regression model, which of the following errors is most likely to occur?
A)    Model misspecification.
B)    Heteroskedasticity.
C)    Multicollinearity.
D)    Serial correlation.

[此贴子已经被作者于2008-4-12 16:50:43编辑过]

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1.Which of the following is least likely to result in misspecification of a regression model?
A)    Transforming a variable.
B)    Using a lagged dependent variable as an independent variable.
C)    Forecasting the past.
D)    Measuring independent variables with errors.
The correct answer was A)
A basic assumption of regression is that the dependent variable is linearly related to each of the independent variables. Frequently, they are not linearly related and the independent variable must be transformed or the model is misspecified. Therefore, transforming an independent variable is a potential solution to a misspecification. Methods used to transform independent variables include squaring the variable or taking the square root.

2.When constructing a regression model to predict portfolio returns, an analyst runs a regression for the past five year period. After examining the results, she determines that an increase in interest rates two years ago had a significant impact on portfolio results for the time of the increase until the present. By performing a regression over two separate time periods, the analyst would be attempting to prevent which type of misspecification?
A)    Forecasting the past.
B)    Using a lagged dependent variable as an independent variable.
C)    Incorrectly pooling data.
D)    Measuring independent variables with error.
The correct answer was C)
The relationship between returns and the dependent variables can change over time, so it is critical that the data be pooled correctly. Running the regression for multiple sub-periods (in this case two) rather than one time period can produce more accurate results.

3.When utilizing a proxy for one or more independent variables in a multiple regression model, which of the following errors is most likely to occur?
A)    Model misspecification.
B)    Heteroskedasticity.
C)    Multicollinearity.
D)    Serial correlation.
The correct answer was A)
By using a proxy for an independent variable in a multiple regression analysis, there is some degree of error in the measurement of the variable.