Spline linear regression used for evaluating financial assets

Liviu Geambaşu (), Ionel Jianu and Cristina Geambaşu
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Cristina Geambaşu: Academy of Economic Studies Bucharest

Annals - Economy Series, 2010, vol. 4.I, 310-321

Abstract: One of the most important preoccupations of financial markets participants was and still is the problem of determining more precise the trend of financial assets prices. For solving this problem there were written many scientific papers and were developed many mathematical and statistical models in order to better determine the financial assets price trend. If until recently the simple linear models were largely used due to their facile utilization, the financial crises that affected the world economy starting with 2008 highlight the necessity of adapting the mathematical models to variation of economy. A simple to use model but adapted to economic life realities is the spline linear regression. This type of regression keeps the continuity of regression function, but split the studied data in intervals with homogenous characteristics. The characteristics of each interval are highlighted and also the evolution of market over all the intervals, resulting reduced standard errors. The first objective of the article is the theoretical presentation of the spline linear regression, also referring to scientific national and international papers related to this subject. The second objective is applying the theoretical model to data from the Bucharest Stock Exchange.

Keywords: assets return; spline regression; asset evaluation model; subsets of data; standard deviation of errors (search for similar items in EconPapers)
Date: 2010
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