Multicollinearity and omitting a correlated variable - Contradiction
I am little confused with the multicollinearity and misspecification thing…
When two independent variables are correlated its multicollinearity and to correct that schweser text says omit one or more correlated variables…
going forward when it goes one to explain misspecifications it says that if an independent variable (say A) is omitted which is correlated with another independent variable (say B) then the error term is also correlated with that remaining variable (i.e. B) resulting in regression coefficients biased and inconsistent..!!
Why excluding a correlated independent variable causing problem when we were supposed to do that when correcting multicollinearity.. I might be missing a connection b/w the two?. SOMEONE PLZ HELP MEEE!!
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