Anh Liu is an analyst researching whether a company's debt burden affects investors' decision to short...

   

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Anh Liu is an analyst researching whether a company's debt burden affects investors' decision to short the company's stock. She calculates the short interest ratio (the ratio of short interest to average daily share volume, expressed in days) for 50 companies as of the end of 2016 and compares this ratio with the companies' debt ratio (the ratio of total liabilities to total assets, expressed in decimal form). Liu provides a number of statistics in Exhibit 1. She also estimates a simple regression to investigate the effect of the debt ratio on a company's short interest ratio. The results of this simple regression, including the analysis of variance (ANOVA), are shown in Exhibit 2. In addition to estimating a regression equation, Liu graphs the 50 observations using a scatter plot, with the short interest ratio on the vertical axis and the debt ratio on the horizontal axis. EXHIBIT 1 Summary Statistics Statistic Sum Average Sum of squared deviations from the mean Sum of cross-products of deviations from the mean i=1 Debt Ratio Xi 19.8550 0.3971 (X-X)² = 2.2225. Σ(X; – X)(Yi i=1 Short Interest Ratio Yi 192.3000 3.8460 (Y - Y)² = 412.2042. 1 Ÿ) = -9.2430. EXHIBIT 2 Regression of the Short Interest Ratio on the Debt Ratio ANOVA Regression Residual Total Regression Statistics Multiple R R² Standard error of estimate Observations Intercept Debt ratio Degrees of Freedom (df) 1 48 49 0.3054 0.0933 2.7905 50 Coefficients 5.4975 -4.1589 Sum of Squares (SS) 38.4404 373.7638 412.2042 Standard Error 0.8416 1.8718 Liu is considering three interpretations of these results for her report on the relationship between debt ratios and short interest ratios: Interpretation 1: Companies' higher debt ratios cause lower short interest ratios. Interpretation 2: Companies' higher short interest ratios cause higher debt ratios. Interpretation 3: Companies with higher debt ratios tend to have lower short interest ratios. She is especially interested in using her estimation results to predict the short interest ratio for MQD Corporation, which has a debt ratio of 0.40. Mean Square (MS) 38.4404 7.7867 t-Statistic 6.5322 -2.2219 Which of the interpretations best describes Liu's findings for her report? A. Interpretation 1 B. Interpretation 2 C. Interpretation 3 Anh Liu is an analyst researching whether a company's debt burden affects investors' decision to short the company's stock. She calculates the short interest ratio (the ratio of short interest to average daily share volume, expressed in days) for 50 companies as of the end of 2016 and compares this ratio with the companies' debt ratio (the ratio of total liabilities to total assets, expressed in decimal form). Liu provides a number of statistics in Exhibit 1. She also estimates a simple regression to investigate the effect of the debt ratio on a company's short interest ratio. The results of this simple regression, including the analysis of variance (ANOVA), are shown in Exhibit 2. In addition to estimating a regression equation, Liu graphs the 50 observations using a scatter plot, with the short interest ratio on the vertical axis and the debt ratio on the horizontal axis. EXHIBIT 1 Summary Statistics Statistic Sum Average Sum of squared deviations from the mean Sum of cross-products of deviations from the mean i=1 Debt Ratio Xi 19.8550 0.3971 (X-X)² = 2.2225. Σ(X; – X)(Yi i=1 Short Interest Ratio Yi 192.3000 3.8460 (Y - Y)² = 412.2042. 1 Ÿ) = -9.2430. EXHIBIT 2 Regression of the Short Interest Ratio on the Debt Ratio ANOVA Regression Residual Total Regression Statistics Multiple R R² Standard error of estimate Observations Intercept Debt ratio Degrees of Freedom (df) 1 48 49 0.3054 0.0933 2.7905 50 Coefficients 5.4975 -4.1589 Sum of Squares (SS) 38.4404 373.7638 412.2042 Standard Error 0.8416 1.8718 Liu is considering three interpretations of these results for her report on the relationship between debt ratios and short interest ratios: Interpretation 1: Companies' higher debt ratios cause lower short interest ratios. Interpretation 2: Companies' higher short interest ratios cause higher debt ratios. Interpretation 3: Companies with higher debt ratios tend to have lower short interest ratios. She is especially interested in using her estimation results to predict the short interest ratio for MQD Corporation, which has a debt ratio of 0.40. Mean Square (MS) 38.4404 7.7867 t-Statistic 6.5322 -2.2219 Which of the interpretations best describes Liu's findings for her report? A. Interpretation 1 B. Interpretation 2 C. Interpretation 3

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The detailed answer for the above question is provided below The correct interpretation of Lius findings for her report is Interpretation 3 Companies ... View the full answer