Explore BrainMass

Explore BrainMass

    Properties of R-Square and Adjusted R-Square

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Need help with the below
    Researcher estimates the following two econometric models
    Yt= β1 + β2x2t + β3x3t +ut
    Yt= β1 + β2x2t + β3x3t + β4x4t +vt
    Ut and Vt are iid disturbances and x3t is an irrelevant variable which does not enter into the data generating process for Yt. Will the value of (a) R^2, (b) Adjusted R^2, be higher for the second model than the first? Explain your answers

    © BrainMass Inc. brainmass.com December 24, 2021, 11:32 pm ad1c9bdddf

    Solution Preview

    (a) The value of R^2 should be higher for the second model as an additional variable (4t) is added to the regression.
    The value of R^2 would be identical for two econometric models only if the coefficient (β4) of the additional variable (4t) equals 0 (i.e. 4t is ...

    Solution Summary

    Explaining how adding a new independent variable will affect the value of R-Square and Adjusted R-Square