CFA Level 2 Flashcards - 1
Adjusted R2
Goodness-of-fit measure that adjusts the coefficient of determination, R2, for the number of independent variables in the model.
Akaike’s information criterion (AIC)
A statistic used to compare sets of independent variables for explaining a dependent variable. It is preferred for finding the model that is best suited for prediction.
Analysis of variance (ANOVA)
The analysis that breaks the total variability of a dataset (such as observations on the dependent variable in a regression) into components representing different sources of variation.
Breusch–Godfrey (BG) test
A test used to detect autocorrelated residuals up to a predesignated order of the lagged residuals.
Breusch–Pagan (BP) test
A test for the presence of heteroskedasticity in a regression.
Coefficient of determination
The percentage of the variation of the dependent variable that is explained by the independent variables. Also referred to as the R-squared or R2.
Conditional heteroskedasticity
A condition in which the variance of residuals of a regression are correlated with the value of the independent variables.
Cook’s distance
A metric for identifying influential data points. Also known as Cook’s D (Di).
Dummy variable
An independent variable that takes on a value of either 1 or 0, depending on a specified condition. Also known as an indicator variable.
Durbin–Watson (DW) test
A test for the presence of first-order serial correlation.
First-order serial correlation
The correlation of residuals with residuals adjacent in time.
General linear F-test
A test statistic used to assess the goodness of fit for an entire regression model, so it tests all independent variables in the model.
Heteroskedastic
When the variance of the residuals differs across observations in a regression.
High-leverage point
An observation of an independent variable that has an extreme value and is potentially influential.
Influence plot
A visual that shows, for all observations, studentized residuals on the y-axis, leverage on the x-axis, and Cook’s D as circles whose size is proportional to the degree of influence of the given observation.
Influential observation
An observation in a statistical analysis whose inclusion may significantly alter regression results.
Interaction term
A term that combines two or more variables and represents their joint influence on the dependent variable.
Intercept dummy
An indicator variable that allows a single regression model to estimate two lines of best fit, each with differing intercepts, depending on whether the dummy takes a value of 1 or 0.
Joint test of hypotheses
The test of hypotheses that specify values for two or more independent variables in the hypotheses.
Leverage
A measure for identifying a potentially influential high-leverage point.
Likelihood ratio (LR) test
A method to assess the fit of logistic regression models and is based on the log-likelihood metric that describes the model’s fit to the data.
Log odds
The natural log of the odds of an event or characteristic happening. Also known as the logit function.
Logistic regression (logit)
A regression in which the dependent variable uses a logistic transformation of the event probability.
Logistic transformation
The log of the probability of an occurrence of an event or characteristic divided by the probability of the event or characteristic not occurring.