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CFA Level 2
Quantitative Methods

Hypothesis Testing in Multiple Regression

Very Hard Multiple Regression Analysis Hypothesis Testing

Consider a multiple regression model designed to estimate the impact of two independent variables, $X_1$ and $X_2$, on a dependent variable $Y$. The estimated regression equation is expressed as:

$$Y = \beta_0 + \beta_1 X_1 + \beta_2 X_2 + \epsilon$$

where $\beta_0$ is the intercept, $\beta_1$ and $\beta_2$ are the coefficients for $X_1$ and $X_2$ respectively, and $\epsilon$ is the error term. After conducting hypothesis testing to determine the significance of $X_2$, the following null and alternative hypotheses are formulated:

Null Hypothesis ($H_0$): $\beta_2 = 0$

Alternative Hypothesis ($H_a$): $\beta_2 \neq 0$

Upon calculating the t-statistic for $\beta_2$, it was found to be 2.45 with a corresponding p-value of 0.016. The significance level (alpha) established for the test was 0.05. What conclusion should be drawn regarding the null hypothesis?

Hint

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