Publication Type
Journal Article
Version
publishedVersion
Publication Date
9-1973
Abstract
Whenever a regression analysis is run, one of the key statistics which is reported is the coefficient of determination or, as it is more commonly kn R2. This quantity represents the proportion of the variance of the dependent variable that is associated with ("explained by") the set of independent vari- ables. However, this statistic is a biased estimate of the true coefficient of determination for the underlying population. Moreover, the bias in unadjusted R2 can be sizeable and may lead to serious misinterpretation of research results. The purpose of this note is to examine the magnitude of the bias in R2 and to discuss some of the properties of R2 adjusted for degrees of freedom, a statistic which is less biased than R2. The properties of the unadjusted R2 are examined in the first part of this note. The second part describes the properties of adjusted R2 when adjustment is considered necessary.
Discipline
Business
Research Areas
Finance
Publication
Journal of Finance
Volume
28
Issue
4
First Page
1009
Last Page
1013
ISSN
1540-6261
Identifier
10.1111/j.1540-6261.1973.tb01423.x
Publisher
Wiley
Citation
MONTGOMERY, David B. and Morrison, D.G..
A note on adjusting. (1973). Journal of Finance. 28, (4), 1009-1013.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/1601
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