Page 41 - 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 3: Determine the utility of the model as a whole.

2,
Coefficient of determination, R is used: it indicates that GDP and ΔI explain 67.05% of the variation in BuildCo’s annual sales.

Tests of significance for the set of independent variables should be performed using the F-test.

The hypotheses for the one-sided F-test can be structured as: H 0 : b ΔI = b GDP = 0
H a : b ΔI ≠ 0, or b GDP ≠ 0

F at the 5% SL with df numerator = 2 and df denominator = 19 is 3.52. Remember, this is a one-tailed test.
c

Decision rule:
Reject H if F > 3.52. Since F > 3.52, Ho can be rejected and we can conclude that at least one of the independent
0
variables significantly contributes to the dependent variable.

That is, changes in mortgage rates and the level of GDP together explain a significant amount of
the variation in BuildCo’s annual sales at the 5% significance level.

Notice that we could have reached this conclusion by observing that the ANOVA table reports that F
is significant at a level less than 0.5%.