Leverage measures how far an observation is from the average value of the independent variable. High leverage observations are those that are far away from the average and have a large effect on the regression line.
For a particular independent variable, leverage of a particular data point measures the distance between its value and the mean value of that variable. Leverage is normalised between 0 and 1. High leverage points may have a leverage factor closer to 1, while low leverage points are closer to 0. The higher the leverage, the more influence it can potentially exert on the estimated regression. A useful rule of thumb is that if the leverage measure exceeds this value, then it is a high leverage point and is potentially influential.
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Are you a CFA Level I candidate, or someone who is exploring taking the CFA exam? Four years ago, I was in your shoes. I am a Computer Engineering graduate and have been working as an engineer all my life. Having developed a keen interest in finance, I decided on a career switch to the finance field and enrolled into the CFA program at the same time.
Was it tough? You bet!
Adjusting to the drastic career change was tough. I naturally neglected the preparation for my Level I exam in June 2014. It was not until the middle of March 2014 that I realized I only had a little more than 2 months to the exam. To compound my problems, I basically did not have a preparation strategy. Having no background in finance at all, I tried very hard to read the curriculum from cover to cover, but eventually that fell flat. I can still recall the number of times I dozed off while studying, or just going back and forth trying to understand even the simplest concept. My mind simply could not keep up after a hard day at work.
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Tweaking the approach
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