Q1. 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) Multicollinearity. B) Model misspecification. C) Heteroskedasticity.
Q2. 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) Using a lagged dependent variable as an independent variable. B) Incorrectly pooling data. C) Forecasting the past.
Q3. 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) Measuring independent variables with errors.
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