For my STAT 520 Applied Econometrics class.
Surprisingly I find myself working on my PEAD research more during finals week… Below is the component residual plot for the current model:
stock's return in the next 30 days ~ last 30 days price change + last 30 days historical volatility + earnings surprise
There’s an apparent association b/w larger earnings surprises and higher returns. Looks like I have some transforming to do on ROC30 and or Volatility30 and possibly some high leverage points to cut. The normal Q-Q plot looks terrible too (not displayed here), so it also looks like I need to use robust SEs or bootstrap to estimate a confidence interval for the Surprise variable’s regression coefficient.