What is Cointegration? A cointegration test is used to establish if there is a correlation between several time series in the long term. The concept was first introduced by Nobel laureates Robert Engle and Clive Granger in 1987 after British economist Paul Newbold and Granger published the spurious regression concept. Cointegration tests identify scenarios where…
What is Empirical Probability? Empirical probability, also known as experimental probability, refers to a probability that is based on historical data. In other words, empirical probability illustrates the likelihood of an event occurring based on historical data. Formula for Empirical Probability Where: Number of Times Occurred refers to the number of times a favorable event…
What is the Adjusted R-squared? The adjusted R-squared is a modified version of R-squared that accounts for predictors that are not significant in a regression model. In other words, the adjusted R-squared shows whether adding additional predictors improve a regression model or not. To understand adjusted R-squared, an understanding of R-squared is required. What is…
What is Subjective Probability? Subjective probability refers to the probability of something happening based on an individual’s own experience or personal judgment. A subjective probability is not based on market data or historical information and differs from person to person. In other words, it is created from the opinion of an individual and is not…
What is Kantian Ethics? Kantian ethics are a set of universal moral principles that apply to all human beings, regardless of context or situation. Immanuel Kant, a German philosopher, calls the principles Categorical Imperatives, which are defined by their morality and level of freedom. Who was Immanuel Kant? Immanuel Kant (Prussia, 1724-1804) was one of…
What is the Average Inventory? The average inventory is the mean value (that can be different from the median value) of an inventory during a determined period of time. The average inventory is thus a mathematical calculation. It estimates, on average, the value or the number of goods stored. Below is the formula to calculate…
What is Attribution Analysis? Attribution analysis, also known as “return attribution” or “performance attribution,” is an evaluation tool used to explain and analyze a portfolio’s performance against a particular benchmark. It is used to identify sources of excess returns from a firm or fund manager’s active investment decisions. Components of Attribution Analysis Attribution analysis compares…
What is Negative Equity? The concept of negative equity arises when the value of an asset (which was financed using debt) falls below the amount of the loan/mortgage that is owed to the bank in exchange for the asset. It normally occurs when the value of the asset depreciates rapidly over the period of use,…
What is Locational Obsolescence? Locational obsolescence is a type of depreciation on a real estate property that is caused by factors other than the property itself. The factors can either be environmental or other external factors that occur in the property’s location. For example, the establishment of an industrial plant in the neighborhood…
What is Nationalization? Nationalization is the process in which a country or a state takes control of a specific company or industry. With nationalization, control that once resided within a corporation now lies with the government. When companies that were once part of the private sector are transformed into a public good, it is often…
