State Street Interview Question: what is the influence to R sq... |

Interview Question

Quant Research Interview Boston, MA (US)

what is the influence to R square when more independent

  variables are added to the regression model

Interview Answer

3 Answers


having more covariates will in general give a better fit, however, this does not necessarily mean a better model (e.g., in terms of generalization). Thus, model comparison is carried out at the end in terms of (1) how the model explains the data (e.g., likelihood, R2, etc), and (2) how simple the model is (i.e., Occam's razor)

RezBoyQ on 27-Jan-2011

One could get a better R squared for having more variables, but that potentially induces overfitting for the sample of data you are looking at. One can look at BIC where the model selection criterion is penalized by having too many variables.

Anonymous on 20-Jun-2011

Additional variables may improve R^2 but may lead to multicollinearity

JB on 31-Oct-2012

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