Financial Terms Linear regression

# Definition of Linear regression

## Linear regression

A statistical technique for fitting a straight line to a set of data points.

# Related Terms:

## Simple linear regression

A regression analysis between only two variables, one dependent and the other explanatory.

## First-pass regression

A time series regression to estimate the betas of securities portfolios.

## Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.

## Log-linear least-squares method

A statistical technique for fitting a curve to a set of data points. One of the
variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data
points.

## Multiple regression

The estimated relationship between a dependent variable and more than one explanatory variable.

## Regression analysis

A statistical technique that can be used to estimate relationships between variables.

## Regression equation

An equation that describes the average relationship between a dependent variable and a
set of explanatory variables.

## Regression toward the mean

The tendency for subsequent observations of a random variable to be closer to its mean.

## Second pass regression

A cross-sectional regression of portfolio returns on betas. The estimated slope is the
measurement of the reward for bearing systematic risk during the period analyzed.

## Simple linear trend model

An extrapolative statistical model that asserts that earnings have a base level and
grow at a constant amount each period.

## least squares regression analysis

a statistical technique that investigates the association between dependent and independent variables; it determines the line of "best fit" for a set of observations by minimizing the sum of the squares
of the vertical deviations between actual points and the
regression line; it can be used to determine the fixed and
variable portions of a mixed cost

## linear programming

a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost

## multiple regression

a statistical technique that uses two or
more independent variables to predict a dependent variable

## regression line

any line that goes through the means (or averages) of the set of observations for an independent variable and its dependent variables; mathematically, there is a line of â€śbest fit,â€ť which is the least squares regression line

## simple regression

a statistical technique that uses only one independent variable to predict a dependent variable

## Regression analysis

Statistical analysis techniques that quantify the
relationship between two or more variables. The intent is quantitative
prediction or forecasting, particularly using a small population to forecast the
behavior of a large population.

## R squared (R^2)

Square of the correlation coefficient proportion of the variability explained by the linear
regression model. For example, an r squared of 75% means that 75% of the variability observed in the
dependent variable is explained by the independent variable.