- Joined
- 11/27/11
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- 11
Hi, I am new to quants and want to make a simple multivariate regression model to predict stock market return based on trailing -> volatility (Std.Dev), valuation (P/E multiple), technical (30DMA).
What i plan to do is use monthly observations 5yrs (60 data points) and run regression to obtain factor exposures (Beta i).
Stock Reutrns (i) -> F ( stdev , P/E, M.avg) in period (i-1)
Reutrn stock market (in period i) = B1 x Std dev (in Period i-1) + B2 x P/E (in Period i-1) + B3 x 30 DMA (in Period i-1).
Hence using the trailing values for the independent varaibles i would be able to predict next months stock return.
Please let me know is this simple multi-factor regression model empirically sound and kindly identify problems in this...or should i make some modifications.
Thanks a lot
ARK
What i plan to do is use monthly observations 5yrs (60 data points) and run regression to obtain factor exposures (Beta i).
Stock Reutrns (i) -> F ( stdev , P/E, M.avg) in period (i-1)
Reutrn stock market (in period i) = B1 x Std dev (in Period i-1) + B2 x P/E (in Period i-1) + B3 x 30 DMA (in Period i-1).
Hence using the trailing values for the independent varaibles i would be able to predict next months stock return.
Please let me know is this simple multi-factor regression model empirically sound and kindly identify problems in this...or should i make some modifications.
Thanks a lot
ARK