“Comment, question or quotation of the day”

26-04-2018 : Quote of the day

Economics is the only field where two people can share the Nobel prize for saying opposing things (Myrdhal and Hayek).
Roberto Alazar

25-04-2018 : Question from a participant of ICCF @ Columbia Business School

    Why limit yourself to linear regressions in estimating multiples? Can not we use exponential or logarithmic or other regressions?   It is rarely used in practice for two reasons.   The first is that everyone does not master the sophisticated mathematical tool that are the exponential or logarithmic regressions.   The second because Cum hoc ergo propter hoc (correlation is not reason). In other words, one can have a good correlation without having a clear and understandable rationality between the two factors. Emile Durkheim showed that there was a good correlation between piano sales and suicide rates. Yet it is difficult to understand why these two variables would be related. The correlation that we see mathematically between multiples and growth rates is all the more relevant as it is easy to explain, not mathematically, why this linear correlation. It's almost common sense. The bar in the field of evaluation would be singularly raised if one were to try to explain why a regression is relevant in a logarithmic or exponential format and not a linear format.   Have a nice day  



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The Vernimmen.com Letter

Number 111 of March 2018

News : 2008/2018/2028 (1/2)

Statistics : Venture capital in Europe in 2017

Research : Tax rates and financial decisions

Q&A : Why does overvaluing inventories lead to loss reductions or profit anticipation?

COMMENTS : COMMENTS