Académique Documents
Professionnel Documents
Culture Documents
1-12
2-12
Example
Professors Note: It is highly unlikely you will have to calculate sb1 on the exam . It is
included in the output of all statistical software packages and should be given to you if
you need it .
Example: Calculating the confidence interval for a regression coefficient
The estimated slope coefficient, B1, from WPO regression is 0.64 with a standard error
equal to 0.26. Assuming that the sample had 36 observations, calculate the 95%
confidence interval for B1.
Answer:
The confidence interval for b1 is:
The critical two-tail t-value are 2.03 (from the t-table with n-2=34 degrees of
freedom ).We can compute the 95% confidence interval as :
0.64 (2.03)(0.26)=0.64 0.53=0.11 to 1.17
Because this confidence interval does not include zero ,we can conclude that the
slope coefficient is significantly different from zero .
3-12
b1 -B1 b1
t=
t (n-2)
s b1
s b1
The decision rule for tests of significance for regression coefficients is:
4-12
Example
Example: Hypothesis test for significance of regression coefficients
The estimated slope coefficient for WPO is 0.64 with a standard error equal to
0.26. Assuming that the sample has 36 observations, determine if the estimated
slope coefficient is significantly different than zero at a 5% level of significance.
Answer:
b1 B1 0.64 0
The calculated test statistics is t
2.46
sb1
0.26
The critical two-tailed t-values are 2.03 (from the t-table with df = 36-2 = 34).
Because t > t critical (i.e., 2.46 > 2.03), we reject the null hypothesis and conclude
that the slope is different from zero. Note that the t-test and the confidence
interval lead to the same conclusion to reject the null hypothesis and conclude
that the slope coefficient is statistically significant.
5-12
6-12
Answer: B
The t-statistic for the industry return coefficient is 1.91/0.31 = 6.13, which is
sufficiently large enough for the coefficient to be significant at the 99%
confidence interval.
Since we have the regression coefficient and intercept, we know that the
regression equation is Rstock= l.9X + 2.1%. Plugging in a value of 4% for the
industry return, we get a stock return of 1.9 (4%) + 2.1% = 9.7%.
7-12
201405
QUESTIONS 43 AND 44 REFER TO THE FOLLOWING INFORMATION
A bank analyst run an ordinary least squares regression of the daily returns of the stock
on the daily returns on the S&P 500 index using the last 750 trading days of data. The
regression results are summarized in the following tables:
Predictor
Coefficient
Standard Error
t-statistic
p-value
Constant
0.0561
0.00294
19.09710
0.00000
1.2054
0.00298
404.25225
0.00000
R2=87.86%
Analysis of Variance
Source
Degree of Freedom
Sum of Squares
Mean Square
Regression
11.43939
11.43939
Residual Error
749
0.05425
0.00007
Total
750
0.44677
8-12
F-statistic
p-value
163419.87971
0.00000
201405
Answer: D
t=
1.8121 t critical 2
s b1
0.00298
(fail to reject)
P-value >5%
9-12
Heteroskedasticity ()
Figure 1: Conditional Heteroskedasticity
Y
Low residual
variance
Y b0 b1 X
0
10-12
11-12
FRM
12-12