What Analysis Would You Use to Test Possible Causal Relationships

question 23

Multiple Choice

What analysis would you use to test possible causal relationships among a set of correlated variables?

• A)Structural equations modeling
• B)Factor analysis
• C)Pearson correlation
• D)Linear regression analysis

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Definitions:

Intercept

The point where a line, curve, or surface intersects a coordinate axis.

Alpha

Alpha is a measure used in finance to describe an investment strategy's ability to beat the market, or its "excess return" relative to the return of the benchmark index.

Index Model

A model of stock returns using a market index such as the S&P 500 to represent common or systematic risk factors.

Covariance

A measure indicating the relationship between two variables and how they move together or apart from each other, used in finance to measure how the returns of two securities are related.