Multiple Linear Regression 02 – ANOVA

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 four factors: the market excess return (MRKT), a size factor (SMB), a value factor (HML), and the monthly percentage change in a bond index (BOND).

You collect the data and run the regression. The resulting model is:

RETᵢ = β₀ + β₁MRKTᵢ + β₂SMBᵢ + β₃HMLᵢ + β₄BONDᵢ + εᵢ.

The ANOVA table for the model is as follows:

SourcedfSSMSFSignificance F

The AIC and BIC for the model are 23.899 and 26.523 respectively.

Why is the language of the Learning Outcome Statements (LOS) different from the curriculum?
The LOS are protected under the CFA Institute's copyright, and we don't have permission to duplicate them verbatim. Therefore, we've rephrased the LOS and included alphabetical labels (a, b, c, …) to simplify cross-referencing with the original LOS in the curriculum when needed.

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