The "within transform" involves

Subtract mean of each entity from each obs. on that entity

To determine whether to use a FE or RE model, a Hausman test is used. Which statement is false?

If Hausman test is not satisfied, the RE is more appropriate

What happens if the residuals from a regression from a small sample are not norm. distributed?

Test stat. of parameters won't follow assumed distribution

Which is a disadvantage of the fixed effects approach to estimating a panel model?

No. of param. to estimate is large, resulting in loss of df

Which of the following statements is TRUE concerning the standard regression model?

y has a probability distribution

Which of the following would be a plausible response to a finding of residual non-normality?

Remove any large outliers from the data.

Including lagged values of the dep. var. on the RHS could lead to which one of the following?

Biased but consistent coefficient estimates

Which one of the following is NOT a plausible remedy for near multicollinearity?

Take logarithms of each of the variables

Which of the following statements is false concerning the linear probability model?

Harder to estimate than regression w. continuous dep var

Which of the following is NOT a feature of continuously compounded returns (i.e. log-returns)?

Can be added across asset portfolio to give portf. returns

Under the null hypothesis of a Bera-Jarque test, the distribution has

Zero skewness and a kurtosis of three

Negative residual autocorrelation is indicated by which one of the following?

An alternating pattern in the residuals

What is the meaning of the term "heteroscedasticity"?

The variance of the errors is not constant

What will be the properties of the OLS estimator in the presence of multicollinearity?

It will be consistent, unbiased and efficient

Which one would NOT be a consequence of using non-stationary data in levels form?

Parameter estimates may be biased

The fixed effects panel model is also sometimes known as

The least squares dummy variables approach

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FRM 2019 Quiz

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Questions 21

Answers

1
The "within transform" involves
Taking the average values of the variables
Estimating a panel data model using LSDV
Subtract mean of each entity from each obs. on that entity
Using time dummies and cross-sectional dummies in a FE model
2
A parsimonious model is one that
Includes as few variables as possible to explain the data
Is a mis-specified model
Includes too many variables
Is a well-specified model
3
What the consequences for the OLS estimator if heteroscedasticity is present but ignored?
biased
All of (a), (b) and (c) will be true.
inconsistent
inefficient
4
To determine whether to use a FE or RE model, a Hausman test is used. Which statement is false?
If Hausman test is not satisfied, the RE is more appropriate
For RE, OLS results in consistent but inefficient parameters
RE not appropr. if comp. error is correlated w. indep. var.
RE estimation involves construction of "quasi-demeaned" data
5
What happens if the residuals from a regression from a small sample are not norm. distributed?
The coefficient estimates will be unbiased but inconsistent
Test stat. of parameters won't follow assumed distribution
The coefficient estimates will be biased but consistent
The coefficient estimates will be biased and inconsistent
6
Which is a disadvantage of the fixed effects approach to estimating a panel model?
Not valid if comp. error is corr. w. other indep. variables
The model is likely to be technical to estimate
No. of param. to estimate is large, resulting in loss of df
FE only capture cross-sect. heterogeneity; not temporal
7
Which of the following statements is TRUE concerning the standard regression model?
The disturbance term is assumed to be correlated with x
For an adequate model, the residual is 0 for all data points
x has a probability distribution
y has a probability distribution
8
Which of the following would be a plausible response to a finding of residual non-normality?
Remove any large outliers from the data.
Estimate the model in first differenced form
Add lags of the variables on RHS
Use a logarithmic functional form instead of a linear one
9
Including lagged values of the dep. var. on the RHS could lead to which one of the following?
Unbiased and consistent but inefficient coeff.
Unbiased but inconsistent coefficient estimates
Biased and inconsistent coefficient estimates
Biased but consistent coefficient estimates
10
Which one of the following is NOT a plausible remedy for near multicollinearity?
Take logarithms of each of the variables
Use a longer run of data
Use principal components analysis
Drop one of the collinear variables
11
Which of the following statements is false concerning the linear probability model?
The error will be heteroscedastic & not normally distributed
Not ensured that estimated probabilities lie between 0 and 1
Harder to estimate than regression w. continuous dep var
12
The price of a house is best described as what type of number?
Cardinal
Ordinal
Discrete
Nominal
13
Which of the following is NOT a feature of continuously compounded returns (i.e. log-returns)?
They are usually fat-tailed
Can be added across asset portfolio to give portf. returns
Can be added over time to give returns for longer periods
Can be interpreted as cont. comp. changes in the prices
14
Under the null hypothesis of a Bera-Jarque test, the distribution has
Zero skewness and a kurtosis of three
Skewness of one and zero kurtosis
Zero skewness and zero kurtosis
Skewness of one and kurtosis of three.
15
Negative residual autocorrelation is indicated by which one of the following?
A complete randomness in the residuals
Residuals that are all close to zero
An alternating pattern in the residuals
A cyclical pattern in the residuals
16
What is the meaning of the term "heteroscedasticity"?
The errors have non-zero mean
The variance of the dependent variable is not constant
The errors are not linearly independent of one another
The variance of the errors is not constant
17
Which of the following could be used as a test for autocorrelation up to third order?
The Breusch-Godfrey test
The Durbin Watson test
White's test
The RESET test
18
What will be the properties of the OLS estimator in the presence of multicollinearity?
It will not be consistent
It will be consistent, unbiased and efficient
It will be consistent but not unbiased
It will be consistent and unbiased but not efficient
19
Which one would NOT be a consequence of using non-stationary data in levels form?
The regression R2 may be spuriously high
Parameter estimates may be biased
Test statistics may not follow standard distributions
Statistical inferences may be invalid
20
The fixed effects panel model is also sometimes known as
The least squares dummy variables approach
A seemingly unrelated regression model
The random effects model
Heteroscedasticity and autocorrelation consistent
21
A DV whose values are not observable outside a range but corresponding values of the IV are ...
Multinomial variable
Censored
Discrete choice
Truncated

FRM 2019 Quiz Flashcards | StudBud