Question: 14. (a) Explain the term measurement error. (b) How does measurement error arise? (c) Is measurement error more serious if it is present in the

14.

(a) Explain the term ‘measurement error’.

(b) How does measurement error arise?

(c) Is measurement error more serious if it is present in the dependent variable or the independent variable(s) of a regression? Explain your answer.

(d) What is the likely impact of measurement error on tests of the CAPM and what are the possible solutions?

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