Financial Model Analysis: Regression and Coefficient of Determination

This assignment analyzes two financial models using regression analysis, focusing on the coefficient of determination (R-squared) to assess the goodness of fit. The analysis compares the performance of ALFAX and PRDSX, with VTI as the independent variable in the initial models. The document then expands to include multiple independent variables (VTI, SMB, HML, and UMD) and performs hypothesis testing on the significance of each variable's coefficient. The analysis highlights the importance of R-squared and stepwise regression in model selection, critiquing a portfolio manager's approach and emphasizing the need for adjusted R-squared and variance inflation factor (VIF) to address multicollinearity. The conclusion identifies the most reliable model based on the analysis.