[Q] Unbalanced panel data regression of financial data against company revenue

Dear community,

I have a time-series of monthly revenues for a department in our company. As we are a service provider, management had the idea that this department’s revenue might be predictable by macroeconomic factors. In order to evaluate that, I have downloaded monthly stock prices of S&P 500 constituents that are in our client base. I have made a fixed effects regression that says that stock returns are negatively correlated with our revenues, which might be plausible for whatever reason (maybe they need more services when things are not going great?). However, I’m wondering if it’s valid to run the regression if a variable is a constant per cross-section in the panel.

My data structure is like below and I aggregated the data by ISIN, such that each ISIN gets its own time-series.

Timestamp ISIN stock_return department_revenue
January 2019 ABCD 0.1 5
January 2019 EFGH 0.05 5
February 2019 ABCD 0.02 4
February 2019 EFGH -0.03 4

So department revenue changes every month, whereas stock returns vary among the ISINs of course. My model would be something like:

department_revenue ~ stock_return

Please help me out here, is there a fundamental flaw in my approach or do I worry for no reason?

submitted by /u/flodase
[link] [comments]

Published by

Nevin Manimala

Nevin Manimala is interested in blogging and finding new blogs https://nevinmanimala.com

Leave a Reply

Your email address will not be published. Required fields are marked *