What is a Regression Model?

//What is a Regression Model?
What is a Regression Model? 2017-10-10T02:52:36+00:00

Definition: A regression model is used to investigate the relationship between two or more variables and estimate one variable based on the others.

What Does Regression Model Mean?

What is the definition of regression model? In regression analysis, variables can be independent, which are used as the predictor or causal input and dependent, which are used as response variables. In experimental studies, independent variable X is the variable that can be controlled and variable Y is the variable that reflects the changes in the independent variable X. For example, the level of advertising expenses in a company is subject to the demand for a particular product. In sampling tests, the distinction between independent and dependent variables is not so clear because all variables are random. Therefore, in sampling tests, there is no causality.

Let’s look at an example.

Example

The electricity that a family consumes for a period of two months and the amount it pays for this consumption are related by a deterministic relationship. If the family consumes a higher amount of electricity for a period of two months than it usually does, the amount due will be higher than usual. This is a determinist, causal relationship.

However, the linear relationship cannot describe the linear stochastic dependence of variables X and Y because if for example, the variable X is the value of a product, and the variable Y is the demand for this product, the corresponding values of Y will be different in different iterations. Or, if the variable X is the amount of fertilizer and variable Y is the yield of a crop, the corresponding values of Y will be different in different iterations due to factors such as temperature, rainfall, or soil quality, which also affect production.

In a regression model, the causal relationship between variables X and Y allows an analyst to accurately predict the Y value for each X value. In simple regression, there is only one independent variable X, and the dependent variable Y can be satisfactorily approximated by a linear function.

Summary Definition

Define Regression Modeling: Regression model means an investment analysis tool used by investors to compare two or more stock variables.