Session 5A: Data Relationships - Applications in Finance & Investing

In finance, we are constantly on the search of relationships between data, both macro and micro, partly because we want to understand them and mostly because we want to use them in predictions. I start with the session with a classic, a regression of returns on Disney against the S&P 500 to get the slope (beta) and use it to analyze the statistical output. I continue with a macro regression of earnings to price ratios of US stocks against short term and long term treasury rates to analyze how the level of rates has affected stock prices in the past, and how it can be used in assessing whether stocks are correctly priced today. I end with an analysis of price to book ratios, returns on equity and standard deviations for European banks, concluding that higher returns on equity and lower standard deviations go with higher price to book ratios.

[arjunreddy]

Amazing lecture!!!..thank you so much for sharing all of this free of cost

[princejha]

This was the most succinct explanation of regression components.

[zacharyseng]

Favorite video among this series so far.

[funmsho]

How do you find a standard stock deviation? How do you calculate?

[abdullaal-kuwari]

@Aswath Damodaran Professor, kindly note that in the first scatter plot Disney was put as an independent variable on the X Axis, while the S&P was the dependent variable on the Y Axis. The rest of the video explains that Disney's returns are dependent and thus related to the S&P. Am I missing something?

Thank you!

[SgtPayneX]

Professor Damodoran, when I worked though introductory econometrics from Wooldridge in a class I remember the assumption being no PERFECT colinearity. Where is the cutoff for too highly correlated independent variables?

[Testing-fusm]

Sir, can you please tell which statistics package you use, or maybe suggest any for us for financial analysis ???
Thanks for the lectures.