Financial Risk Manager Part 1

Explanation

When the F-statistic is greater than its critical value (in this case, the critical value is 4), it means:

• We reject the null hypothesis H₀: All slope coefficients = 0
• The model as a whole is statistically significant
• The independent variables collectively have explanatory power

Since the question states that the F-statistic is greater than the critical value of 4, option C is correct.

Key Points:

• F-statistic > Critical value → Reject H₀ → Model is statistically significant
• F-statistic < Critical value → Fail to reject H₀ → Model is not statistically significant

The F-statistic formula provided: $F = \frac{\left[\frac{\text{ESS}}{k}\right]}{\left[\frac{\text{RSS}}{(n - k - 1)}\right]}$

Where:

• ESS = Explained Sum of Squares
• RSS = Residual Sum of Squares
• k = number of independent variables
• n = number of observations