Analysis of variance

Splitting the total variation in the dependent variable into the part a regression explains and the residual part. Its table gives the sums of squares from which R², the standard error and the F-statistic follow.

Where you will meet it

Analysis of variance appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain what a simple linear regression's ANOVA table and F-statistic tell you
  CFA Level I · Quantitative Methods

  “The ANOVA table splits the total variation in the dependent variable, SST, into the part the regression explains, SSR, and the unexplained part, SSE.”

• Judge how much of the variation in the explained variable a multiple regression captures, using ANOVA output and goodness-of-fit statistics
  CFA Level II · Quantitative Methods

  “The ANOVA table splits the total sum of squares into the part the regression explains (RSS) and the residual part (SSE).”

See also

Dependent variable · F-statistic · Standard error

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

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