Page 20 - FINAL CFA II SLIDES JUNE 2019 DAY 3

LOS 8.j: Formulate a multiple regression equation READING 8: MULTIPLE REGRESSION AND ISSUES IN REGRESSION ANALYSIS
by using dummy variables to represent qualitative
factors and interpret the coefficients and
regression results. MODULE 8.5: DUMMY VARIABLES

Do the quarters, individually or collectively, explain EPS?

2
The F-statistic for b1, b2, b3 and the R can address this question.

Lets test the Ho that average EPS in each of the first 3 quarters = the 4th quarter:

Critical t-value for 2TT with
n − k − 1 = 40 − 3 − 1 = 36 df

EXAMPLE: Hypothesis testing with dummy variables: The standard error of the coefficient b is equal to 0.15 from the EPS regression
1
model. Test whether first quarter EPS is equal to fourth quarter EPS at the 5% significance level.

t-statistic is 0.75 / 0.15 = 5.0

The 2TT 5% critical value with 36 df= 2.03.

Reject Ho and conclude that 1st quarter EPS is statistically-speaking,
significantly different than 4th quarter EPS at the 5% SL.