medium · FRM Part 1 Quantitative Analysis
If an analyst reports that a regression's adjusted R^2 is negative, what is the most likely mathematical reason?
- The model has near-perfect multicollinearity, making adjusted R^2 mathematically undefined.
- The analyst has surely made an error, since adjusted R^2 is bounded between 0 and 1, just like raw R^2.
- The dependent variable shows a strong negative correlation with every explanatory variable used.
- The raw R^2 is very low, and the number of predictors (k) is high relative to the sample size (n).
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