An important consideration in the analysis of financial variables using Ordinary Least Squares (OLS) estimation is the potential for bias if a key variable is omitted. Specifically, when analyzing a financial variable's behavior, at what point does the bias arise due to the exclusion of an important variable in the OLS model?

Exam-Like

Omitted variable bias occurs when the omitted variable is correlated with an included regressor and is a determinant of the dependent variable.

62.4%

Omitted variable bias occurs when the omitted variable is correlated with an included regressor but is not a determinant of the dependent variable.

10.4%

Omitted variable bias occurs when the omitted variable is independent of an included regressor and is a determinant of the dependent variable.

18.4%

Omitted variable bias occurs when the omitted variable is independent of an included regressor but is not a determinant of the dependent variable.

8.8%

Financial Risk Manager Part 1