multiple linear regression

CFA Level II
#1

Hi,

the multiple linear regression formular "Y=b+bX +bX +␣+bX +εi is using the natural logarithm for Y and X. do you know why? i think i’ve read the explanation somewhere, but i don’t remember where in the book they put the explanation. appreciate if you can explain.

Thanks.

#2

You can’t model exponential growth with OLS regression. Using the log makes it linear.

#3

To be clear: you use log(Y) (_ but not _ log(X)) to make it linear when the growth is exponential (Y = k^X, so log(Y) = log(k) × X).

Using log(Y) _ and _ log(X) is the approach when Y = X^k; then log(Y) = k × log(X), which is linear.