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Factor Exposure Analysis 102: More or Less Independent Variables?

The challenges of regression analysis

Nicolas Rabener
10 min read
11 Jan 2021

SUMMARY

  • There are few alternatives to regression analysis when explaining investment performance
  • Too few as well as too many independent variables can be problematic
  • The results are often not intuitive, but also encourage asking further questions that may prove insightful

INTRODUCTION

The older I become, the less I feel I know anything with certainty. Almost every aspect of life seems to have various degrees of grey rather than being black and white. Most knowledge seems to peel away like an onion at closer inspection and highlights different shades, but rarely an ultimate truth.

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