Quant Memo
Statistics/●●●●●

What an interaction term actually changes

You fit y=b0+b1x+b2z+b3(xz)+εy = b_0 + b_1 x + b_2 z + b_3 (xz) + \varepsilon, where xx is a signal strength and zz is market volatility.

Explain what each coefficient means once the interaction b3b_3 is present, and the classic mistake people make interpreting b1b_1.

Your answer

This one is open-ended. Work it through, then check your reasoning against the full solution.

More Statistics questions