Chapter 5 · Section 3 practice

Robust Regression with Fat Tails

0 of 2 answered

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

Question 1

How will OLS respond to three high points at small \(x\)?

  • Slope up, intercept down
  • Slope down, intercept up
  • Both unchanged — three points cannot matter out of 103
  • Slope up, intercept up

Question 2

OLS gives \(\beta \approx 1.06\). What will a Student-t likelihood give?

  • Exactly the same — beta is beta
  • Much lower, because crash days are removed
  • Slightly different in a direction you cannot predict in advance
  • Exactly 1 — the CAPM says so