jacksparrow

The 1-4 lags are possible explanatory variables ( think degrees of freedom ).

The observations are the thing that's going to create your sample for the regression test , and the more observatons ,the better, as your mean standard error will reduce for the same sum of squared errors.

Generally in regression problems you have a few explanatory variables ( like 2 or 3 , not more than 7 or 8 in APT ) .

But observations usually at least 30 , again more the better