Listing Category: Quantitative Methods

R² vs. Adjusted R²

There’s a lot more to R2 and adjusted R2 than appears in the CFA curriculum. I’ll discuss what you need to know for the exam; the rest you can get from a statistics textbook if you’re interested

Durbin-Watson Statistic (Test)

The Durbin-Watson (DW) statistic is used in a test for serial correlation of residuals (i.e., error terms) in several types of regression models

Dummy Variables

The idea of a dummy variable is fairly simple: it’s a variable that can take on a value of 0 or 1; it simply shows the absence (0) or presence (1) of some characteristic. Nevertheless, there are some important rules you need to remember about dummy variables.

Degrees of Freedom

Suppose that, for reasons known only to yourself and your therapist, you need to know the average height of all giraffes in the world. Desperately. You face a number of obstacles, not the least of which is that there are estimated to be about 80,000 giraffes in the world, and giraffes are notoriously difficult to capture (they are, shall we say, disinclined to coöperate, and they can weigh up to 3,000 pounds). So, after years on the leather couch and tens of thousands of dollars spent, you find yourself finally content to establishing a confidence interval for the average height of all giraffes in the world based on a sample of 500 giraffes.