 Financial Terms Linear regression

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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.

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

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

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

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. multiple regression

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

Regression analysis

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

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.

Regression equation

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

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 “best fit,” which is the least squares regression line

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.

simple regression

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

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