Regression analysis of oil price return - 3199 Words

Contents 1.0 Introduction and Motivation 2 2.0 Methodology 5 2.1. Descriptive Statistics 5 2.2 Matrix of pairwise correlation. 6 3.0 Model Specification 6 3.1 Linear Regression Model. 6 3.2 The Regression Specification Error Test 8 3.3 Non-linear models 9 3.4 Autocorrelation. 10 3.5 Heteroskedasticity Test 10 4.0 Hypothesis Testing 11 5.0 Binary (Dummy) Variables 11 6.0 Conclusion 13 Reference List 13 1.0 Introduction and Motivation Crude oil is one of the world’s most important natural resources. Over the past six decades or so, crude oil – because of the products derived from it, has become highly indispensable in our everyday lives. Despite being a non-renewable resource, it is still used extensively in power generation.†¦show more content†¦Through group brainstorming, we came up with a number of variables that theoretically should affect the price of crude oil, and we used Bloomberg to find data on the same. Our two main criteria for a â€Å"good† variable were statistical significance and R2. We conducted a regression analysis as well as multiple regression analysis to double check the variables we selected on the Bloomberg terminal. Moreover, so as to not omit any good variables, we broadened our search to the Oil commodity section to find relevant industry reports and prospective variables. Through a process of rough trial and error, and after eliminating several variables d ue to problems such as multicollinearity and heteroskedasticity, we finalized the three variables that are mentioned below. As crude oil is invoiced in USD, it is of interest to note how fluctuations in the value of the USD affect oil prices. Another of our factors is the price of natural gas, the closest substitute as a source of energy to oil. Lastly, we seek to establish a relationship between returns in the SP500 and oil prices. We used monthly time-series data over a period of ten years beginning from 2005 for the purpose of this study. To avoid issues of non-stationary data, we used oil price returns and SP500 returns. 2.0 Methodology Our y variable is the percentage monthly return on WTI oil spot prices. West Texas Intermediate Cushing crude oil price is typically used as the reference spot price in theShow MoreRelatedAccounting Information and Predicting Financial Performance1049 Words   |  5 Pagesaccounting information includes regression analysis. Regression analysis is viewed by many to be more useful that financial data or ratios alone. Regression analysis often test whether past stock prices, sales, profit, financial ratios, solvency, and other items are related to other variables including GDP, interest rates, market saturation of the industry, etc. In addition, a degree of confidence can be determined concerning the relationship of the variables in regression analysis Accounting ratios are determinedRead MoreRelationship Between Gold, Oil and Us Stock Market1600 Words   |  7 Pagesrelationship between the oil prices, gold prices and stock market in the United State using yearly time series data. Si nce the gold and oil prices are raising their influence on stock market is also increasing and we will see how fluctuations in oil prices and gold prices impact the stock market in the United States. So here oil prices and gold prices will be our explanatory variable and stock market index will be our explained variable. 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The time period of the data is from 2011 to 2013 as this was a period of high volatility in oil prices andRead MoreA Brief Note On Dow Chemical And Industry1519 Words   |  7 PagesQ7 From Q6, all regression models ran by Single Index Model, a model helps to split a security’s total risk into unique risk and market risk, ÃŽ ± is the intercept of the single index model in which evaluate the expected excess return of the security , and ÃŽ ² is the security’s sensitivity to the market index, while e represents the unsystematic risk of the security: Basic statistics ran from Q6 given with the average industry performance: EBAY INDUSTRY ÃŽ ± 0.025Read MoreA Brief Note On Dow Chemical And Industry1522 Words   |  7 PagesQ7 From Q6, all regressions models ran by Single Index Model, a model helps to split a security’s total risk into unique risk and market risk, ÃŽ ± is the intercept of the single index model in which evaluate the expected excess return of the security , and ÃŽ ² is the security’s sensitivity to the market index, while e represents the unsystematic risk of the security: Basic statistics ran from Q6 given as follow with the average industry performance: EBAY INDUSTRYRead MoreForeign Exchange Rate Sensitivity and Stock Price1702 Words   |  7 PagesFOREIGN EXCHANGE RATE SENSITIVITY AND STOCK PRICE : ESTIMATING ECONOMIC EXPOSURE OF TURKISH COMPANIES INTRODUCTION Variability in exchange rate is a major source of macroeconomic uncertainity affecting firms. 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There have been many variables affecting the way in which this correlation isRead MoreRaw Materials And The Natural Resources1439 Words   |  6 Pagescommodity is a good that can be traded (bought and sold) in commercial transactions between buyers and sellers and its price determines based on its demand and supply. commodities are mainly used as inputs to produce other commodities. they could be perishable such as agricultural commodities as tea, sugar and corn. The other type is non-perishable commodities as gold, rubber and oil.\ In the last decade, a massive economic growth movement has been occurred in the developing countries since theseRead MoreEssay on The Economics of Financial Markets1724 Words   |  7 Pagessignificantly increased. Exchange rate has been very instrumental in formulation of government policies in these regions. In fact, â€Å"many analysts regard exchange rate policy as a major determinant of other economical outcomes, such as adjustment to the oil shocks of the 1970’s and the debt the debt crisis of the 1980’s† (Frieden Ernesto, 2010) Generally speaking, there were four principal categories of exchange rate regimes in Latin America as discussed by Kiguel Alberto: (i) Countries with fixed exchangeRead MoreProject Task a: Valuation and Sensitivity Analysis2868 Words   |  12 Pagesfrequent player. In the section 1, the report deals with the valuation of the company. I will estimate the value of QAN’s on a per share basis. According to the historical prices of the company and all ordinaries, I will calculate QAN’s beta by calculating a regression on the monthly returns from QAN on the market returns in the last 5 years. And according to the QAN’s financial data, I will rebuild its historical Cash Flows. In addition, I gather relevant financial data and other non-financial