Dependent variable
The variable a regression sets out to explain, also called the explained variable. Its fitted value is the intercept plus the slope times the independent variable.
Where you will meet it
Dependent variable appears in 10 learning outcomes on the CFA syllabus. A few of them:
- Set out what a simple linear regression assumes
“Simple linear regression fits a straight line relating one independent variable to one dependent variable, and it rests on four assumptions: the relationship is linear, the errors have zero conditional mean given the independent variable (they are uncorrelated with it), the errors have constant variance across observations, and the errors are normally distributed.”
- Set out which investment questions multiple linear regression can answer and the steps involved in running one
“Frame the question, choose the dependent and independent variables, then ask whether the dependent variable is continuous; if it is a yes-or-no outcome, logistic regression fits better than ordinary least squares.”
- Explain what the intercept, slope and coefficient of determination mean
“The slope is the estimated change in the dependent variable for a one-unit change in the independent one, and it carries the units of both.”
- Work out the standard error of estimate and explain what it shows
“The standard error of the estimate measures the typical distance between the observed values and the fitted line, in the units of the dependent variable.”
See also
Practise it
Practise dependent variable until it is automatic: questions that explain every wrong option.
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