medium · FRM Part 1
An analyst performs a regression with n=100 and k=5, obtaining an R^2 of 0.40.
If the analyst adds 5 more variables that are essentially random noise, which of the following is most likely to occur?
- Both the raw R^2 and the adjusted R^2 will increase due to the increased complexity of the model.
- The raw R^2 will increase or stay the same, while the adjusted R^2 will likely decrease.
- The F-statistic for joint significance will increase because the model now has more explanatory variables.
- The residual sum of squares (SSR) will increase, causing the adjusted R^2 to drop.
Sign up free to see the explanation and track your rank →
More FRM Part 1 practice
- According to the CAPM, which type of risk are investors compensated for bearing?
- What specific variety of liquidity risk is being described?
- How is 'Risk Capacity' distinguished from 'Risk Appetite' in a standard risk governance fr
- If a loan has a Probability of Default (PD) of 2.0%, an Exposure at Default (EAD) of $1,00
- If two portfolios have the same Sharpe ratio but one has positive skewness and the other h
- In a 'Liquidity Spiral', what is the primary channel by which market liquidity risk and fu
- In the context of the CAPM, what is the definition of 'Alpha' (α)?
- In the risk decomposition formula σ^2_i = β^2_i σ^2_M + σ^2_ε, what does σ^2_ε represent?