Which of the Following Is True of the Correlated Random

question 10

Multiple Choice

Which of the following is true of the correlated random effects approach (CRE) ?

• A)The CRE approach assumes that the unobserved effect is uncorrelated with the observed explanatory variables.
• B)The CRE approach cannot be used if the regression model includes a time-constant explanatory variable.
• C)The CRE approach considers that the unobserved effect is correlated with the average level of explanatory variables.
• D)The CRE estimate equals the random effects estimate.

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Definitions:

Market Risk Premium

The additional return an investor requires from a market portfolio over the risk-free rate as compensation for bearing higher risk.

Risk-free Rate

The theoretical return on an investment with zero risk, typically represented by the yield on government securities.

Individual Security

A specific financial instrument, such as a stock or bond, that represents ownership in a company or governmental debt obligation.

Treasury Bills

Treasury bills are short-term government securities issued at a discount from the face value and mature in one year or less, representing a secure, low-risk investment option.