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Multiple Regression Model Analysis 08-07-19
Maddox Smith
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Multiple Regression Model Analysis Introduction Today’s stock market offers as many opportunities for investors to raise money as jeopardies to lose it because market depends on different factors, such as overall observed country’s performance, foreign countries’ performance, and unexpected events. One of the most important stock market indexes is Standard & Poor’s 500 (S&P 500) as it comprises the 500 largest American companies across various industries and sectors.
First Regression Model Specifications and Data How accurately can we predict the stock market behavior? We decided to use the US economic indicators and the other countries’ GDP. Hence with this research we are hoping to find a statistically significant model that would describe what affects the stock market. We used the average annual data from 1980 to 2011 to track the influence on the US market. Our data is a time-series data. At the very beginning, we assumed that the following factors may have influence on stock market: S&P500 (Percentage Change) = β0 + β1 * (Annual CPI) + β2 * (Annual Average PPI) + β3 * (Annual Average House Price Index) + β4 * (Annual Average Interest Rate) + β5 * (Percentage Change of Annual Average GDP of US) + β6 * (Percentage Change of Annual Average GDP of Spain) + β7 * (Percentage Change of Annual Average GDP of Germany)
Assignment Writing Tips β1: Consumer Price Index reflects the state of inflation in the country’s economy. Therefore that indicator is very important in the assessment of the stock market performance. Therefore, if investors know that the PPI heralds a strong economy with no increase in an interest rate, then they feel confident to invest in the businesses what means increased positive activity in the market. We assume that this variable is going to have some impact on the dependent variable however; it is not going to be crucial.
Best Assignment Help Provider in UK β3: House Price Index is an analytical tool for estimating changes in the rates of mortgages.
Considering such recession
scenario, the stock market always becomes bearish. Additionally, house market is considered more stable investment than stock market. When stock market drops, people are willing in the houses and HPI goes up. We assume that HPI and stock market shouldn’t move in the same direction thereby we don’t take into consideration the complex scenario of 2008. β4: 10-Year Treasury Constant Maturity Rate impacts on the number of issued bond and is used as risk free rate to calculate the excess return on the investment. It also has an influence on the stock market.
Cheap Assignment Help UK β5: Gross Domestic Product of the US is important for business profit and this can drive the stock prices up. Investing in the stock market seems reasonable when the economy is doing well. If the economy is growing fast then the stock market should be affected positively, the investors are more optimistic about the future and they put more money into market more. This variable is crucial for the dependent one.
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