Investopedia

Continue to Site »

Least Squares Method

Filed Under » ,
Dictionary Says

Definition of 'Least Squares Method'

A statistical technique to determine the line of best fit for a model. The least squares method is specified by an equation with certain parameters to observed data. This method is extensively used in regression analysis and estimation.
Investopedia Says

Investopedia explains 'Least Squares Method'

In the most common application - linear or ordinary least squares - a straight line is sought to be fitted through a number of points to minimize the sum of the squares of the distances (hence the name "least squares") from the points to this line of best fit.

In contrast to a linear problem, a non-linear least squares problem has no closed solution and is generally solved by iteration. The earliest description of the least squares method was by Carl Freidrich Gauss in 1795.

Articles Of Interest

  1.

    Regression Basics For Business Analysis

    This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how.

  2. The Linear Regression Of Time and Price

    This investment strategy can help investors be successful by identifying price trends while eliminating human bias.

  3. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  4. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  5. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!

  6. Liquidity Vs. Solvency

    Learn about the differences between these two words and how each one is used in the stock market.

  7. Calculating The Means

    Learn more about the different ways you can calculate your portfolio's average return.

  8. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.

  9. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.

  10. R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center