Multiple Linear Regression 01 – Portfolio monthly excess returns
You are a financial analyst at an investment firm. Your manager asks you to analyze the performance drivers for one of the firm’s portfolios. He asks you to construct a regression model of the portfolio’s monthly excess returns (RET) against three factors: the market excess return (MRKT), a size factor (SMB), and the monthly percentage change in a bond index (BOND).
You collect the data and run the regression, and the resulting model is:
“It’s not going to be easy, but it’s going to be worth it.”
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Question 1 of 5
1. Question
What type of regression model should you use?
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Question 2 of 5
2. Question
How should the coefficient of the bond index (XBOND) be interpreted?
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Question 3 of 5
3. Question
What is the purpose of creating diagnostic charts?
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Question 4 of 5
4. Question
What does it mean if the residuals do not appear to be homoskedastic?
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Question 5 of 5
5. Question
What should you do if none of the independent variables are significant explanatory variables?
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