[R-sig-finance] Using R in equity research
Ajay Shah
ajayshah at mayin.org
Mon Jun 7 18:02:17 CEST 2004
> I've been doing valuation studies within industries, looking at how
> some valuation measures relate to company characteristics and
> external factors over time. My professor suggested using mixed
> effects models for such longitudinal data studies, and I don't have
> a budget for this sort of thing, so using R and the NLME package was
> a natural choice. I think I'm doing some things with it I haven't
> seen other analysts do.
I'm not sure I understand what you are doing, but I've often thought
about doing the following: Suppose you estimate regression models
_within_ a homogeneous industry, where you put P/E or P/B on the
l.h.s. and you use a bunch of firm characteristics as explanatory
variables. Would the outliers be places to take a good look for a
profit opportunity? (Is this what you have in mind?)
The problem with this (AFAICT) is that the cross section of accounting
ratios / data tends to be pretty nasty in terms of
distributions. You'll always have a few weird observations which drive
the result. R might be particularly good at this, by virtue of
bringing a variety of statistical and graphical tools to bear on weird
observations, non-normal distributions, etc.
All this is just guesswork, I haven't actually done it. If you have,
do show us examples?
--
Ajay Shah Consultant
ajayshah at mayin.org Department of Economic Affairs
http://www.mayin.org/ajayshah Ministry of Finance, New Delhi
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