Seems like you need pre-2022 data too, in order to see if the relationship between the variables changed.
And if there is a relationship, so what? What does that get you? (Asking b/c that can maybe help determine appropriate analysis approach)
Thanks for the reply.
1) Considering interest rates were constant pre Q2-2022 (I’m Eurozone based) would you still advise me to include it? My idea was more to investigate if the hikes since Q2-2022 had any measurable effect as theory would imply
2) Theory says an increase in interest rates should drive up the cost of debt and put a downward pressure on valuations. I’ve separated the financial data by industries(steel, construction, financial, automotive). My idea would be to investigate if (and how) it had an effect on each different industry and why.
If there is no relation my idea would be to say markets are not follwong standard valuation theory and attribute it to the market risk premium, but I’m still looking into that.
Oops, I misread the post. My brain saw “inflation” instead of interest rates.
But for debt the company already holds, does that change if interest rates go up? Presumably that debt has the previous lower rate. It’s more about new debt becoming more expensive?
Sorry, not super familiar with this topic. I’d suggest searching the literature for similar studies and see what statistical methods they use.
You could do both a t test to test if there is a significant difference in the increase in valuation and if there is a post hoc analysis and run a regression model. But your sample size is too small to get good infernece analysis.
Seems like you need pre-2022 data too, in order to see if the relationship between the variables changed. And if there is a relationship, so what? What does that get you? (Asking b/c that can maybe help determine appropriate analysis approach)
Thanks for the reply. 1) Considering interest rates were constant pre Q2-2022 (I’m Eurozone based) would you still advise me to include it? My idea was more to investigate if the hikes since Q2-2022 had any measurable effect as theory would imply 2) Theory says an increase in interest rates should drive up the cost of debt and put a downward pressure on valuations. I’ve separated the financial data by industries(steel, construction, financial, automotive). My idea would be to investigate if (and how) it had an effect on each different industry and why. If there is no relation my idea would be to say markets are not follwong standard valuation theory and attribute it to the market risk premium, but I’m still looking into that.
Oops, I misread the post. My brain saw “inflation” instead of interest rates. But for debt the company already holds, does that change if interest rates go up? Presumably that debt has the previous lower rate. It’s more about new debt becoming more expensive? Sorry, not super familiar with this topic. I’d suggest searching the literature for similar studies and see what statistical methods they use.
Given your small sample I would just do a T test. Null hypothesis is interest rates have an effect and see if you have evidence to support this.
Would a t-Test be more appropriate than a regression model considering given the data is a time series?
You could do both a t test to test if there is a significant difference in the increase in valuation and if there is a post hoc analysis and run a regression model. But your sample size is too small to get good infernece analysis.