A brokerage company provides advice to investors on which companies to invest in. They specialize in banks and track earnings and share prices of Canadian banks. Two analysts, Allison and Bob, meet at the water cooler.

Allison: “A high share price is brought about by high earnings. The more a bank earns the more it attracts investors, pushing the share price up. I’m going to regress average share price against earnings as the explanatory variable.”

Bob: “I think earnings depends on share price. If the share price goes up that’s because investors think the bank is doing well and expect higher earnings. I’m going to regress earnings against the average share price as the explanatory variable.”

Allison: “Earnings have been low in recent quarters, but my regression will show how much the share price will go up if earnings are twice as high as recently.”

Bob: “Good luck, but I’m sure my regression will explain more of the variability than yours.” Critique the above discussion bringing out four clearly separate points.