Chapter 4 · Section 2 practice

Inference and Model Selection

0 of 3 answered

These questions review the examples in the companion slides. Choose an answer, then check the explanation.

Question 1

Which is a defensible model-selection claim?

  • The subset with the smallest p-value must have the best future return
  • A higher training R² guarantees lower future RMSE
  • Validation can guide a fixed search, but repeated tuning consumes its independence and coefficients still need identification for causal claims
  • A large VIF proves every prediction is wrong

Question 2

What does a coefficient confidence interval describe?

  • A band containing 95% of future stock returns
  • Uncertainty in a specified coefficient under the estimation and sampling assumptions
  • The probability that every strategy trade succeeds
  • The maximum possible drawdown

Question 3

A large VIF most directly indicates what?

  • A proven causal relationship
  • Strong linear predictability of one regressor from the others
  • Guaranteed poor future portfolio performance
  • A calibrated classifier