In the realm of financial analysis, ordinary least squares (OLS) estimation is a widely used technique to understand the behavior of financial variables. A financial analyst must carefully select appropriate regressors to include in the OLS model to ensure accurate results. Omitted variable bias occurs in this context. Can you explain the specific conditions under which omitted variable bias arises?

Exam-Like

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

69.7%

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

5.3%

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.

6.6%

Financial Risk Manager Part 1