Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Comments
Loading comments...
Ultimate access to all questions.
A risk manager performed a regression analysis of a firm's monthly portfolio returns on three US domestic equity indices: the Russell 1000, Russell 2000, and Russell 3000. The results are presented below:
Regression Statistics Multiple R: 0.951 R-Squared: 0.905 Adjusted R-Squared: 0.903 Standard Error: 0.009 Observations: 192
Based on the regression results, which statement is correct?
Regression Statistics
Multiple R: 0.951
R-Squared: 0.905
Adjusted R-Squared: 0.903
Standard Error: 0.009
Observations: 192
| Regression Output | Coefficients | Standard Error | t-Stat | P-Value |
|---|---|---|---|---|
| Intercept | 0.0023 | 0.0006 | 3.5305 | 0.0005 |
| Russell 1000 | 0.1093 | 1.5895 | 0.0688 | 0.9452 |
| Russell 2000 | 0.1055 | 0.1384 | 0.7621 | 0.4470 |
| Russell 3000 | 0.3533 | 1.7274 | 0.2045 | 0.8382 |
| Correlation Matrix | Portfolio Returns | Russell 1000 | Russell 2000 | Russell 3000 |
|---|---|---|---|---|
| Portfolio Returns | 1.000 | |||
| Russell 1000 | 0.937 | 1.000 | ||
| Russell 2000 | 0.856 | 0.813 | 1.000 | |
| Russell 3000 | 0.945 | 0.998 | 0.845 | 1.000 |
A
The estimated coefficient of 0.3533 indicates that the returns of the Russell 3000 Index are more statistically significant in determining the portfolio returns than the other two indexes.
B
The high adjusted R2 indicates that the estimated coefficients on the Russell 1000, Russell 2000, and Russell 3000 Indexes are statistically significant.
C
The high p-value of 0.9452 indicates that the regression coefficient of the returns of the Russell 1000 Index is more statistically significant than the other two indexes.
D
The high correlations between each pair of index returns indicate that multicollinearity exists between the variables in this regression.