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Quant-Regression

Is this understanding correct?

Regression SS is the sum of squares that is explained by your model. Residual SS is the sum of squares that is not explained by your model. 

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Close.

The regression sum of squares is the portion of the variance of the dependent variable that is explained by the regression.  The residual sum of squares is the portion of the variance of the dependent variable that is not explained by the regression.

Simplify the complicated side; don't complify the simplicated side.

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And when we say that the expected value of the error term is zero, we are saying that the mean should be zero and not the absolute value, right? Or is it that even the absolute value of the error term should be zero, because then, actual will be equal to predicted.

S2000magician wrote:

Close.

The regression sum of squares is the portion of the variance of the dependent variable that is explained by the regression.  The residual sum of squares is the portion of the variance of the dependent variable that is not explained by the regression.

gargijain wrote:
And when we say that the expected value of the error term is zero, we are saying that the mean should be zero and not the absolute value, right? Or is it that even the absolute value of the error term should be zero, because then, actual will be equal to predicted.

Yes, the mean is zero.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Not the absolute value of the error term, is it? Sorry to be bothering you again.

S2000magician wrote:

gargijain wrote:
And when we say that the expected value of the error term is zero, we are saying that the mean should be zero and not the absolute value, right? Or is it that even the absolute value of the error term should be zero, because then, actual will be equal to predicted.

Yes, the mean is zero.

gargijain wrote:
Not the absolute value of the error term, is it? Sorry to be bothering you again.

S2000magician wrote:
gargijain wrote:
And when we say that the expected value of the error term is zero, we are saying that the mean should be zero and not the absolute value, right? Or is it that even the absolute value of the error term should be zero, because then, actual will be equal to predicted.

Yes, the mean is zero.

If the absolute value of the error term is zero, then the error term is zero, so there is no deviation from the regression line.

Some errors are positive; others are negative.  The mean is zero.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/