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Multiple Linear Regression 77 security from its characteristic line. The betas from the first-pass regression are then used to f ...

78 The Basics of financial economeTrics Beta is not the only factor priced by the market. Several studies have dis- covered oth ...

Multiple Linear Regression 79 that of the CAPM beta. The conclusion from the regression results reported in Table 3.9 is that th ...

80 The Basics of financial economeTrics the quality of the model with respect to the given data (diagnosis of the model). ■ (^) ...

81 A fter reading this chapter you will understand: ■ (^) What is meant by multicollinearity in a multiple linear regression mod ...

82 The Basics of financial economeTrics variable and let all other independent variables be equal to zero. Now, esti- mate a reg ...

Building and Testing a Multiple Linear Regression Model 83 Just to pick one possibility of ambiguity, the same effect is achieve ...

84 The Basics of financial economeTrics jth independent variable. Therefore, we need to regress the jth variable on the remainin ...

Building and Testing a Multiple Linear Regression Model 85 which independent variables to use. Increasing the number of independ ...

86 The Basics of financial economeTrics explained by the second independent variable to the total of unexplained variation befor ...

Building and Testing a Multiple Linear Regression Model 87 regression at first. Then we consider all variables for exclusion on ...

88 The Basics of financial economeTrics because Dor and Jagannathan use a stepwise regression to further illustrate their point. ...

TABLE 4.1 Hedge Funds Style Analysis Using Stepwise Regression This exhibit reports for each fund the results of a stepwise esti ...

90 The Basics of financial economeTrics and the assumptions about the error term. We discuss the implications of the violation o ...

Building and Testing a Multiple Linear Regression Model 91 Let’s see how a simple transformation can work as explained in Chap- ...

92 The Basics of financial economeTrics estimated. Instead, nonlinear regression estimation techniques require the use of optimi ...

Building and Testing a Multiple Linear Regression Model 93 From the second implication above we can see that violation of the no ...

94 The Basics of financial economeTrics (^) K n xx n xx i n i n = − ()−     = = ∑ ∑ 1 1 4 1 2 1 2 () (4.20) for a sample o ...

Building and Testing a Multiple Linear Regression Model 95 Tests For Constant Variance of the Error Term (Homoscedasticity) The ...

96 The Basics of financial economeTrics (dropping the subscript ε for the error term), we can then deflate the terms in the biva ...