“Autos Sales” is one of the major producers of domesticautomobiles report sales monthly. These numbers are seasonally adjusted by theU.S. Department of Commerce and are available to the public one to fivebusiness days after the end of each month. 1 This is an important element tothe financial markets since it is highly correlated with consumer demands forthe market and car sales can express the changes in the economy precisely. There is an old warning story named “boiled frog.” Thefrog’s body temperature follows its surroundings. If you put the frog directlyin boiling water, it will sense the heat immediately and jump out.
However,when you heat the water slowly, the frog keeps adjusting to the risingtemperature. When the heat is too much for the frog to take, it is too late.The frog collapses and dies. 2 This theory can apply into economic as well. Forexample, in a hamburger restaurant, if?the price for one hamburger changefrom $5.
49 to $5.99, it would not have many people noticed this change.Therefore, it would not affect their sales a lot based on common sense.Nevertheless, if the price for one hamburger changes from $5.
99 to $6.99,people will catch this change easily and the sales for the hamburger maydecrease due to the change in price. Various differences in auto sales share thesame situation here. For predictors which can use for estimating the change?inauto sales, when the predictors change a little bit, auto sales may not shiftaccording to this adjustment and it will not be influenced by this. However, ifthere is a big change in one predictor, then it will lead a change in autosales just as the “boiled frog” theory. Having a small change in predictorsseems like that putting a frog in and heating the water slowly, auto sales willadjust itself and change a little bit to follow the changing trends inpredictors. On the other hand, if there is a big change in predictors, it lookslike that putting a frog directly in boiling water. In this way, auto saleswill follow this big change immediately and then be acted to such big change.
Lin 4 Based on statistics studies, using first derivatives ofpredictors to measure the level of change in each predictor is a good way to doanalysis. With the new car sales changing a lot in the United States,what affecting units of new car sales has become a topic of great interest toresearchers. As we can see from the plot below: Figure 1.1 Auto Car Sales(With Smoothing) There is a big downward change in year 2008. Since car salesare an excellent indicator of the financial market, the reason may be financialcrisis. However, what specific factors affect units of car sales and howsensitive of each one to units of car sales? This is an important direction tolet us explore.
If we know what will lead a change in auto car sales, we areable to know the market trend in order to have some accurate predictions. Thereare many research articles about how to predict auto car sales by using grossdomestic product (GDP) to make prediction. Gross domestic product (GDP) isdefined by the Organisation for Economic Co-operation and Lin 5