Instead of attempting to predict what the total first-day return will be, we are going to attempt to predict whether the IPO will be one we should buy for a trade or not. It is here that we should point out that this is not investment advice and is for illustrative purposes only. Please don't run out and start day trading IPOs with this model willy-nilly. It will end badly.
Now, to predict a binary outcome (that's a 1 or 0/yes or no), we will start with a model called logistic regression. Logistic regression is actually a binary classification model rather than regression. But it does utilize the typical form of a linear regression; it just does so within a logistic function.
A typical single variable regression model takes the following form:
Here, t is a linear function of a single explanatory variable, x. This can, of...