Lec 2 - regression

Question 1

What are regressions used for?

Answer 1

Analysing relationships between two or more factors
E.g:
- Factors that influence stock market
- Determinants of capital structure

Question 2

What is the market model?

Answer 2

E = error term (the straight line is not completely accurate in describing the real life relation between rit and rmt)

Question 3

What does OLS mean? And what do you minimise?

Answer 3

Ordinary least square
The sum of squared errors
(quantifies and operationalises the idea of best fit)

Question 4

What is the depedent variables in the market model?

Answer 4

rit
rmt
both depdendent

Question 5

Can there be mor ethan one independent variable?

Answer 5

In a simple linear regression - no there is only 1
In a multiple linear regression - yes there are multiple independent variables