Question

3. Determine whether the following are true or false and explain why: a) R2 can be negative. b) R2 can be larger than 1. c) Adjusted R2 can be negative. d) Adjusted R2 can be larger than 1. e) suˆ is a measure of out-of-sample fit f) CV is a measure of out-of-sample fit Now consider the following two models: Yi = β0 + β1Xi + ui (M1) Yi = β0 + β1Xi + β2X2 i + ui (M2) 1 and determine whether each of the following statements is true, false or uncertain, and explain why: a) M1 has better out-of-sample fit than M2 b) The R2 will be higher for M1 than for M2 c) M2 and M1 are nested models d) I can test whether M1 and M2 are statistically different by testing for whether β1 = 0 e) The CV will be higher for M1

Answer 1

Answer:

Ans.(a) False. R2 is always positive.

Ans.(b) False. R2 is always between 0 and 1

Ans (c) True. Adjusted R2 can be negative.

Ans.(d) False. Adjusted R2 cant be larger than 1.

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