Applications of Simple Linear Regression in Finance
Free CFA Level I lesson in Quantitative Methods. 12 min read, ~1,739 words.
OLS picks the slope and intercept that minimize the sum of squared residuals. Slope; intercept. Four assumptions: linearity, independence (no autocorrelation), homoskedasticity, normally distributed errors. Diagnose violations by plotting residuals.; F = MSR/MSE; t-stat on slope =. In simple regression,. Prediction interval is wider than confidence interval for the mean...
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- Example 1
- Example 2
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Learning objectives
- applications of simple linear regression in finance
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