Financial Risk Manager Part 1
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The following statements regarding R² and the adjusted R² are correct EXCEPT:
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NNikitesh
A
If R² improves after the addition of an independent variable, that does not necessarily mean that the variable is statistically significant
B
A high R² means that the independent variables are the definite causes of the movement seen in the dependent variable
C
Even with a high value of R², it's incorrect to assume that all the relevant independent variables have been found
D
The R² cannot and does not give evidence that the most or least statistically significant variables have been selected
Explanation:
A high R² does not mean that the included independent variables are the exact/definite cause of the movement seen in the dependent variable. In some cases, the R² could just be spurious, which rules out exactness. The other statements are correct: (A) R² improvement doesn't guarantee statistical significance, (C) high R² doesn't mean all relevant variables have been identified, and (D) R² doesn't indicate which variables are most/least statistically significant.
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