Finally! This module presents us with our first statistical model. The correlation between an outcome (y) variable and an independent (x) variable is measured. Our emphasis will be on causal analysis. So, before jumping too quickly into any analytics we’ll take a more cautionary approach and think carefully about the distinction between correlation and causation.
At the end of this chapter, you’ll be able to:
Classify financial data as cross-sectional, time series, or panel
Distinguish between correlational and causal econometric analysis
Perform ordinary least squares (OLS) regression on financial data
Evaluate the goodness of fit for an OLS model to determine the in-sample predictive accuracy of the statistical analysis