1) The book-to-market ratio and the size of a company's equity are two factors that have been asserted to be useful in explaining the cross-sectional variation in asset returns. Based on this assertion, you want to estimate the following regression model:
where is the return of asset i,
is the asset i's book-to-market ratio, and
is the market value of asset i's equity
A colleague suggests that this regression specification may be erroneous, because he believes that the book-to-market ratio may be related to the ...
Solution Summary
The solution discusses the problem regarding multicollinearity.
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This posting provides interpretation of regression output including Rsquare, correlation matrix, multicollinearity, p-value etc. Please see the attached file. ...
...Multicollinearity Multicollinearity in regression is a condition that occurs when some predictor variables in the model are correlated with other predictor ...
