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Multiple Regression Model Analysis

Executive Summary

This report is a statistical study conducted to understand the stock market and its movement on the basis of various economic factors.

A common man may note that the stock market values move randomly and believe that making a profit in the market is luck based phenomenon but if one observed deeply or studies the market in depth, there is a system that controls the market behavior. Stock brokers and professionals who understand this system manage huge profits. This system that drives the stock market behavior includes various factors and components. These factors or components drive the stock market share values and the overall movement in the shares in the market, drives the market movement. Some of the statistical studies have observed that by understanding the trend in the market also one has frame a strategy that may generate profits. But, the observation of trend had resulted to be a random walk in most of the studies and thus could not completely rely upon the trend analysis of the market to assess the market fluctuations or performance. Further, many statistical studies have been performed identifying various factors related to the industry, country and economy which have significant impact in controlling the stock market.

This study has targeted to analyze the United States Stock market by taking reference of Standard and Poor 500 as the stock market index by understanding the movement of the index with various identified economic factors. The index value for 30 years has been obtained and analyzed in this study. Various economic factors which include Consumer Price Index, House Price Index, 10 year treasury bonds maturity rate, GDP of the United States and the competing nations have been considered to understand their statistical significance in controlling the stock market index values.

Multi Regression model has been adopted to perform the statistical analysis by forming a relation between the dependent variable of stock market index value with the various economic factors listed above. Two models have been formed based on different economic factors and further details of the stock market index, the economic factors and the results of the models are discussed in the sections of the report below.

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