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The FF -Statistic With q=2q = 2 Restrictions When Testing for the Restrictions

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Essay

The FF -statistic with q=2q = 2 restrictions when testing for the restrictions β1=0\beta _ { 1 } = 0 and β2=0\beta _ { 2 } = 0 is given by the following formula:
F=12(t12+t222ρ^t1,t2t1t1ρ^t1,t22)F = \frac { 1 } { 2 } \left( \frac { t _ { 1 } ^ { 2 } + t _ { 2 } ^ { 2 } - 2 \hat { \rho } _ { t _ { 1 } , t _ { 2 } } t _ { 1 } t } { 1 - \hat { \rho } _ { t _ { 1 } , t _ { 2 } } ^ { 2 } } \right) Discuss how this formula can be understood intuitively.


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