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. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.
  4. Top 4 Most Scandalous Insider Trading Debacles

    Here we look at some of the landmark incidents of insider trading.
  5. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  6. The Copper King: An Empire Built On Manipulation

    Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders.
  7. 7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  8. Breaking Down The Geometric Mean

    Understanding portfolio performance, whether for a self-managed, discretionary portfolio or a non-discretionary portfolio, is vital to determining whether the portfolio strategy is working or ...
  9. Private Equity A Trendsetter For Stocks

    In this article, we'll show you how private equity sets the trend for stocks everywhere.
  10. Tracking Volatility: How The VIX Is Calculated

    When market volatility spikes or stalls, newspapers, websites, bloggers and television commentators all refer to the VIX®. Formally known as the CBOE Volatility Index, the VIX is a benchmark ...
comments powered by Disqus
Marketplace
Hot Definitions
  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...
  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...
  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.
  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.
  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.
  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center