The Financial Times Guide to Understanding Finance, 2nd Edition

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Stats IV: Regression analysis

• Regression analysis: An overview
• Hypothesis testing
• Risk, return, and emerging markets
• Multiple explanatory variables
• The adjusted-R²
• Forecasting
• A final comment
• The big picture
• Excel section

We’ve come to the end of our statistical review. Our last topic, regression analysis, has many and far-reaching applications in finance. It’s also very broad and it can get rather technical, so we will only scratch its surface here. Our goal is to go over the very basics of running and interpreting regression models. And in finance, that is not only essential; it also goes a long way toward understanding, among many other issues, the relationship between risk and return.

Regression analysis: An overview

In a nutshell, ...