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simple linear regression with financial applications

# simple linear regression with financial applications -...

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M O D U L E 5 S I M P L E L I N E A R R E G R E S S I O N W I T H F I N A N C I A L A P P L I C A T I O N S

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2 C O N T E N T S : M O D U L E 5 1. Introduction 2. Model Specification 2.1 The Nature of Stochastic Functions 2.2 The Types of Mathematical Functions 2.3 The Choice of Variables 2.4 The Assumptions about the Error Terms 3. Estimation Procedures 3.1 Key properties of an estimator 3.2 The Ordinary Least Squares (OLS) Method 3.3 Estimating the Variance of the Error Terms 3.4 Maximum Likelihood Estimation 3.5 Estimation Problems 4. Model Evaluation 4.1 Correlation Analysis 4.2 The 't' Test of β 4.3 Measuring Different Types of Variation 4.4 The Coefficient of Determination 4.5 The Adjusted Coefficient of Determination 4.6 The Analysis of Variance Procedure 5. Forecasting with Regression Models 6. Finance Applications 6.1 Introduction 6.2 Estimating Betas 6.2.1 The Alternative Models 6.2.2 The Thin Trading Problem 6.3 A Financial Ratio Analysis Application 6.4 A Hedging Application Appendix – The secrets of hypothesis testing
3 R E F E R E N C E S Gujarati, Ch 1, 2, 3 and 5 Johnson and Di Nardo, Ch 1 Thomas, Ch 4, 5 and 6 Wooldridge Ch 1 and 2 Additional Useful References P.Barnes (1985), The Analysis and Use of Financial Ratios: A Review Article Journal of Business Finance and Accounting, Vol14(4) p 449 - 461. E.R.Berndt (1991), The Practice of Econometrics: Classic and Contemporary , Ch 2 T.J. Brailsford, R.W.Faff, Research Design Issues in the Estimation of Beta , Ch 4. and B.R.Oliver (1977) J.Doti and E.Adibi (1998) The Practice of Econometrics with EViews , Ch 4.3-4.4 M.Grinblatt and S.Titman (1998) Financial Markets and Corporate Strategy , Ch 5. M.Kritzman (1991) What Practitioners need to know about Regressions Financial Analysts Journal, May-June, p 12 - 15 B.McDonald and M.Morris (1985) The Functional Specification of Financial Ratios: An Empirical Examination , Accounting and Business Research, Summer, p 223 - 228. R.Ramananathan (1998) Introductory Econometrics (4e), Ch 3 T.Watsham and K.Parramore (1997) Quantitative Methods in Finance , Ch 6