Page 40 - FINAL CFA II SLIDES JUNE 2019 DAY 2

MODULE 8.3: ANOVA AND THE F-TEST READING 8: MULTIPLE REGRESSION AND ISSUES IN REGRESSION ANALYSIS

Step 2: Determine the significance of the individual independent variables.

Can be done using t-tests and p-values.

• Using p-values. Only the p-value of the coefficient for ΔI < 5% level of significance, so we conclude that only ΔI
contributes significantly to the level of BuildCo’s annual sales.

• Using t-statistics: H : b = 0 versus H : b ≠ 0
j
0
a

Decision rule:
The critical 2TT t-values with df = 19 are ±2.093. Reject H if –2.093 >t > 2.093 But t GDP = 1.33: Within range/CI!
0

We can’t reject Ho for GDP, and we conclude that the level of GDP does not make a statistically significant contribution to
the variation in sales at the 5% level.

We conclude that changes in mortgage rates make a significant contribution
Since (t = –5.758) < (t = –2.093) to the variation in sales at the 5% level.
ΔI
c

The use of p-values or t-tests will always result in the same conclusions about the statistical significance of the slope
estimate (i.e., coefficients on the independent variables). On the exam, use the p-value if it is provided!