Suppose that the model pctstck = Bo + Bfunds + Bzrisktol + u satisfies the first four Gauss-Markov assumptions, where pctstck is the percentage of a worker's pension invested in the stock market, funds is the number of mutual funds that the worker can choose from, and risktol is some measure of risk tolerance (larger risktol means the person has a higher tolerance for risk). If funds and risktol are positively correlated, what is the inconsistency in Bj, the slope coefficient in the simple regression of pctstck on funds?

Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter3: Matrices
Section3.7: Applications
Problem 14EQ
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Suppose that the model
pctstck = Bo + Bfunds + Bzrisktol + u
satisfies the first four Gauss-Markov assumptions, where pctstck is the percentage of a worker's
pension invested in the stock market, funds is the number of mutual funds that the worker can
choose from, and risktol is some measure of risk tolerance (larger risktol means the person has a
higher tolerance for risk). If funds and risktol are positively correlated, what is the inconsistency
in Bj, the slope coefficient in the simple regression of pctstck on funds?
Transcribed Image Text:Suppose that the model pctstck = Bo + Bfunds + Bzrisktol + u satisfies the first four Gauss-Markov assumptions, where pctstck is the percentage of a worker's pension invested in the stock market, funds is the number of mutual funds that the worker can choose from, and risktol is some measure of risk tolerance (larger risktol means the person has a higher tolerance for risk). If funds and risktol are positively correlated, what is the inconsistency in Bj, the slope coefficient in the simple regression of pctstck on funds?
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