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An Economic Regression Model To Predict Market Movements, Timothy A. Smith, Andrew Hawkins
An Economic Regression Model To Predict Market Movements, Timothy A. Smith, Andrew Hawkins
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In finance, multiple linear regression models are frequently used to determine the value of an asset based on its underlying traits. We built a regression model to predict the value of the S&P 500 based on economic indicators of gross domestic product, money supply, produce price and consumer price indices. Correlation between the error in this regression model and the S&P’s volatility index (VIX) provides an efficient way to predict when large changes in the price of the S&P 500 may occur. As the true value of the S&P 500 deviates from the predicted value, obtained by the regression model, …