Apr

18

I know The Chair uses linear regression and so do some hedge funds. But what are you people using it for? Predicting earnings? Stock Returns? Stock Prices?

What kind of inputs make sense to insert into a linear regression model? What mistakes do you think people make when using linear regression?

Big Al responds:

A book the Chair has recommended:

Applying Regression and Correlation: A Guide for Students and Researchers

I've used correlation for exploring lots of simple questions like, "Does the move on Monday predict the move on Tuesday?" The basic model is just "does A predict B?"

One mistake often made when looking at time series like stock prices is to use absolute dollar/point changes rather than % changes. Always use % changes.


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