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Using OLS to Explore Economic Predictors of Stock Growth

Article Quant Q&A · Author: user25954
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Summary

The discussion asks whether stock growth can be modeled using GDP growth and an education measure observed over time. The response says ordinary least squares is a reasonable general method for exploring a relationship when there is a rationale for expecting those explanatory variables to relate to stock growth. It frames the exercise as model building rather than a claim that the variables are necessarily predictive or causally connected.

No dataset, regression output, or empirical finding is provided. The answer cautions that model setup can introduce errors and indicates that more information would be needed for specific guidance. It does not identify which time-series concerns to check, how to choose variables or transformations, or how to assess predictive performance. The exchange therefore supports OLS as a possible starting point, while leaving formal specification and validation decisions unresolved.

Key ideas

  • OLS can be used to explore how GDP growth and an education measure relate to stock growth.
  • A reasoned hypothesis for the relationship helps motivate the model.
  • The discussion reports no regression results or evidence that the predictors forecast stock growth.
  • Correct specification and further details matter, but the response does not list specific diagnostics.

Tags

StatisticsEquitiesUS markets
Full text
# How to find relationships between financial data?


# How to find relationships between financial data?












Suppose I have a time series of stock growth and one of gdp growth and education over the years.

Can I try to explain stock using gdp and education by running an OLS or would I be mistaken from a formal (not content) point of view?

## Answer by piRSquared (score 3)

https://quant.stackexchange.com/a/31809

I'm not sure what you mean by formal but if you have intuition into why gdp or your education metric should be related to the growth of stocks, then by all means, build a model that tries to find the relationship between them.

OLS is one way to find a relationship between gdp and education relative to stock growth. There would be nothing wrong with that concept in general.

That said, there are many things you could do wrong in setting up your model. You may want to share more in order to get more help.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.