FoundationMultiple choice
Two nearly identical factors · Part 1 of 3
You regress a stock’s returns on two standardised factors whose sample correlation is 0.95. Both factors genuinely matter.
What is the variance inflation factor of each coefficient?
- AAbout 20, from 1/(1 − 0.95)
- BAbout 10.3
- CAbout 1.05, from 1/0.95
- D0.0975, the unexplained share of each factor
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