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Imagine a Complex Correlational Study in Which Three Independent Variables

question 40

Essay

Imagine a complex correlational study in which three independent variables are measured along with one dependent variable. Imagine that X1 is strongly related to the dependent variable but that X2 and X3 are not. Does this prove that X1 is a cause of the dependent variable? Why or why not?


Definitions:

Convergence

The movement of the price of a futures contract towards the spot price of the underlying asset as the delivery date approaches.

Futures Contracts

Legal agreements to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Spot Price

The current market price at which a particular asset can be bought or sold for immediate delivery.

Arbitrage Opportunities

Situations where a trader can make a profit from the price difference of a security or commodity in two different markets without risk.

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