Page 13 - FINAL CFA II SLIDES JUNE 2019 DAY 2

LOS 7.f: Calculate and interpret the standard error
of estimate, the coefficient of determination, and a MODULE 7.3: HYPOTHESIS TESTS AND CONFIDENCE INTERVALS
confidence interval for a regression coefficient.

Standard error of estimate (SEE) measures the degree of variability of the actual Y-values relative to the estimated Y-values
from a regression equation. The SEE gauges the “fit” of the regression line. The smaller the standard error, the better the fit.

The SEE is the standard deviation of the error terms in the regression. As such, SEE is also referred to as the standard error of
the residual, or standard error of the regression.

COEFFICIENT OF DETERMINATION (R )
2

The percentage of the total variation in the dependent variable explained by the independent variable. For example, an R of
2
0.63 indicates that the variation of the independent variable explains 63% of the variation in the dependent variable.

REGRESSION COEFFICIENT CONFIDENCE INTERVAL (RCCI)

Hypothesis testing for a regression coefficient may use the confidence interval for the coefficient being tested. For instance,

H : b = 0
1
0
H : b ≠ 0.
a
1