The Rule-Of-Thumb for Checking for Weak Instruments Is as Follows

question 6

Multiple Choice

The rule-of-thumb for checking for weak instruments is as follows: for the case of a single endogenous regressor,

• A)a first stage F must be statistically significant to indicate a strong instrument.
• B)a first stage F > 1.96 indicates that the instruments are weak.
• C)the t-statistic on each of the instruments must exceed at least 1.64.
• D)a first stage F < 10 indicates that the instruments are weak.

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Definitions:

Equity Multiplier

A financial leverage ratio that measures the portion of a company`s assets that are financed by its shareholders' equity.

Price-Earnings Ratio

A valuation ratio comparing a company’s current share price to its per-share earnings, helping investors evaluate if a stock is over or under-valued.

Net Profit Margin

A financial ratio that shows the percentage of net income generated from total revenue.

Gross Margin

The difference between sales revenue and the cost of goods sold, representing the profitability before deducting operating expenses.