Linear regression

  1. How do linear regression calculations work if the trend you’re trying to predict isn’t supposed to be a straight line? What if you’re trying to predict exponential growth such as population growth in the USA, which we assume rises at 2.5% per year or something like that

  2. Which part of the CFA, if any, covers linear regression? Before studying for level 1, I thought I was going to see more questions on it but I’ve seen zero in my practice exams.

Linear regression is in L2. As for exponential growth, you can estimate it as a log-linear model.

Linear Regression is part of Level 2 curriculum.

Not particularly well.

Thus, as busprof mentioned, you could transform the data into a function that you believe is linear; e.g., if you thought that the growth were exponential, you could plot (xi, ln(yi)) and runa linear regression on those numbers. Another possibility is to use nonlinear regression; if you think that the growth is exponential, use an exponential function for your regression curve, rather than a straight line.

Again, as busprof said, you’ll see it at Level II, at least for the time being. They’ve moved it back and forth between Level I and Level II a few times.

I strongly doubt the logics of CFAI’s arrangements because the concepts of regression / correlation / covariance are all introduced in L2 whereas these concepts are applied in some L1 readings !!!

Maybe it’s better for some powerful CFA charterholders to request CFAI to change these readings to L2 !!!