Interpretation of Market Returns Coefficient in Regression Analysis

Medium Multiple Regression Analysis Regression Coefficients

During a recent analysis, an investment analyst estimated a multiple regression model to understand the relationship between a firm's stock returns and various independent variables including market returns, company size, and earnings growth rate. The regression output provided the following coefficients:

1. Market returns coefficient: 1.5

2. Company size coefficient: -0.2

3. Earnings growth rate coefficient: 0.8

In this context, how should the analyst interpret the coefficient for the market returns variable?

A 1% increase in market returns is associated with a 1.5% increase in the firm's stock returns, holding all other factors constant.

A 1% increase in market returns is associated with a 0.67% increase in the firm's stock returns, holding all other factors constant.

The market returns variable has a negative impact on the firm's stock returns.

Hint

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