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Limited Dependent Variables (Logit and Probit Models) and an Application on BIST-100: Logit and Probit Models

In: Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics

Author

Listed:
  • Lokman Kantar

    (Istanbul Gelisim University)

Abstract

Regression models of a dependent variable that take on qualitative values 0 and 1 cannot be interpreted as conventional regression models. The fact that the dependent variable takes on two different values causes some problems in the model. These problems include the fact that the model’s errors do not show normal distribution, that the model’s errors take on values less than 0 or greater than 1, and that the relationship between dependent and independent variables is not linear. Nonlinear models should be utilized to solve these problems. Nonlinear models include logit and probit models. Therefore, logit and probit models are discussed in detail in this chapter of the book. Macroeconomic factors affecting the return on the BIST-100 Index (Gold price per ounce, TL Deposit Interest, Euro-Dollar Currency Basket Return) have been investigated using logit and probit models. The findings of the study indicate that the return on the BIST-100 Index is affected by Euro-Dollar Currency Basket Return.

Suggested Citation

  • Lokman Kantar, 2021. "Limited Dependent Variables (Logit and Probit Models) and an Application on BIST-100: Logit and Probit Models," Springer Books, in: Burcu Adıgüzel Mercangöz (ed.), Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics, edition 1, pages 167-195, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-54108-8_7
    DOI: 10.1007/978-3-030-54108-8_7
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    More about this item

    Keywords

    Logit; Probit; BIST-100 Index; OLS; ML; R2; Pseudo-R2; McFadden R2;
    All these keywords.

    JEL classification:

    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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