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I am using cross effect in OLS regression for a time series problem for a multivariate regression. I want to quote reference for use of cross effect. Secondly, I want to explain why better to use multiplication /product in regression rather than addition for calculation of cross effect. My regression equation is:

$Y=intercept+ ax_1 + bx_2 + a*bx_3$+error term

I need to see a reference for interaction based cross effect using multiplication to detail a regression effect in a volatility study. I hope you can understand and reply to my query.

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    $\begingroup$ do you mean interaction effects? $Y=intercept+ ax_1 + bx_2 + c x_1 x_2+\epsilon$ $\endgroup$ – develarist Jun 29 at 21:10
  • $\begingroup$ yes and I am not comparing term with and without interaction.I want to explain term with interaction but interaction based on multiplication rather than addition. $\endgroup$ – Adeel Arshad Jul 1 at 6:18
  • $\begingroup$ I want to know why multiplication or interaction is better than just additive regression.Is there any literature review.Like we assume that interaction exists when we have higher Rsquared value for model with multiplication or cross effect than simple additive model? can you explain? $\endgroup$ – Adeel Arshad Jul 1 at 7:58

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