Re: "Regression" average VS the "Arithematic" Average
- From: "The Last Danish Pastry" <clivet@xxxxxxxxx>
- Date: Mon, 19 Feb 2007 09:55:40 -0000
"Brablo" <gestureofrespect@xxxxxxxxx> wrote in message
news:1171855401.344234.270730@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Here is the data (all ~487 or so points of the S&P 500).
You totally misunderstood what I'm saying. I did *NOT* set up one
experiment with a constant. Let me re-clarify what I did.
1. In my first experiment, I simply took the arithematic average of
the P/B ratio of all 487 points. P/B is simply the market cap of
the
stock divided by the book value of the company. So to find the
average (market capped weighted, essentially), summed up the entire
market cap of the S&P 500. I also summed up the entire book value
of
these 487 companies. Now i have 2 very, very large numbers. When I
divide the first of these numbers (total Market Cap which exceeds
$12T) by the second, I get 2.85.
2. In my second experiment, I decided to regress the market cap
(MC)
to the BV without including a constant. It was found that the slope
relating the BV to the MC (the P/B ratio) was 2.50. This value is
quite different from the first answer of 2.85.
It would probably be simpler if we reduced the number of companies,
and the sizes of the numbers involved.
Consider just two companies, C1 and C2.
C1: MC= 3, BV=1
C2: MC=21, BV=2
Your first experiment would give, I think, a result of 8
= (3+21)/(1+2) = 24/3
Your second experiment would give, I think, a result of 9
= (3x1 + 21x2)/(1x1 + 2x2) = 45/5
# Are my 8 and 9 correct?
# Do you understand why the two numbers are different?
--
Clive Tooth
http://www.shutterstock.com/cat.mhtml?gallery_id=61771
.
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