Principles of Finance · free preview
Regression Applications in Finance
Regression serves finance in its signature applications, beta estimation in the market model, cost and revenue drivers in managerial analysis, and yield curve fittings in fixed income, with interpretation disciplined by the assumptions audit of the last lesson.
1. The market model and beta
The market model and beta
2. Managerial drivers, cost and revenue
Managerial drivers, cost and revenue
3. Fixed income and curve fittings
Fixed income and curve fittings
4. The audit as professional standard
The audit as professional standard
5. The market model's output
Regressing a stock's monthly returns on the market's gives a slope of 1.2 with an R-squared of 0.45. How should these numbers be read?
6. Choosing the beta window
Why do beta estimators balance a long history against a recent window?
7. The cost regression's split
Regressing monthly operating cost on production volume yields a slope of 12 and an intercept of 40,000 dollars. What do the coefficients mean?
8. Reverse causation in the driver regression
Why might a regression of sales on advertising overstate advertising's productivity?
9. Curve fitting's service
What does a regression of bond yields on maturity provide the fixed income analyst?
10. The audit sequence's place
Across all the applications of this lesson, what sequence does the professional standard require before interpreting any regression?
11. The performance intercept
In the market model, what Greek letter names the intercept that measures a stock's return beyond what its beta explains? Write the letter's name.
12. The market model's name for beta's regression
What two-word term names the regression of a stock's returns on the market's returns whose slope is beta? Answer in lowercase.
13. The cost slope's meaning
In a cost regression on volume, the slope estimates which category of cost per unit? Answer with one word.
14. The two regression outputs that split variation
What two-word statistic, abbreviated R-squared, reports the share of variation a regression explains? Answer in lowercase.
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