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5/21/2017 ABriefInterpretationofOutputofSimpleRegressionHassan

Hassan

ABriefInterpretationofOutputofSimple
Regression
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(1)
numberofobservations:Itmustbegreaterthanthe'numberof
Numberofvariablesplus1'.Herewewanttoestimatefor1variableonly,sonumberofobservationsmust
be3ormore,andwehave41observationsitisgood.
ItisbettertohaveLargenumberofobservationstogetagoodresult.(like100ormoreobservations.(The
largerthebetter)
(2)and(3)
Cistheconstantanditsvalueis0.155798.ThisresultsaysthatifthereisnoX,orsayifXiszerothen,
valueofYis0.155798.

(4)
0.422690isstandarderrorof0.155798.Standarderrormeasureshowreliablethecoefficient0.155798is.
youcanperformhypothesistestfor0.155798andconfidenceintervalwiththisvaluelater.(Thesmallerthe
better)
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5/21/2017 ABriefInterpretationofOutputofSimpleRegressionHassan

(5)
0.368588istStattisticforcoefficient0.155798
Ifyoudividecoefficientbyitsstandarderroryouwillgetitststatistic.0.155798/0.422690=0.368588.So
0.368588isthetStattisticsfor0.155798
Tstatisticstellsuswhethercoefficientissignificantornot.Ifabsolutetstatistics(withoutpositiveor
negativesign)isgreaterthanthecriticalvalueofTdistributionthencoefficientissignificant.Insignificant
otherwise.Forinstance,tcriticalvaluefor41observationsandtwoparametersis1.685.since0.368588is
notgreaterthan1.685thecoefficient0.155798isnotsignificant.However,fornowyoudontneedto
performtestsusingtstatisticsbecauseEviewscalculatesPvaluesforyouwhichiseasierto
calculatethesignificance.
(6)
0.7144isPvalueoftStatistics
Ittellsuswhetherthecoefficientissignificantornot.Itiseasierthanthe(5)IfPvalueis0.01orsmallerthan
0.01then,coefficientissignificantat1%levelmeaningthattheestimatedcoefficientisverystrongly
significant.Andifitis0.05orsmallerthan0.05thanthecoefficientisalsostronglysignificantat5%level.Ifit
is0.10orsmaller,then,thecoefficientissignificantbutnotsostrongasprevioustwo.InthetablePvalueis
0.7144whichmeansthattheof0.155798isnotsignificant.
(7)
Xisindependentvariable,thevariablewhoseeffectonYyouwanttotest
(8)
Thecoefficientfortheindependentvariable.Itisthemostimportantpartofthistable.Ittellsushowmuch
thedependentvariablechangeiftheXchange1unit.Theestimatedvalue1.025555meansthatifX
increaseby1unittheYincreasesby1.025555unitandifXdecreasesby1unittheYdecreasesby
1.025555unit.Pleasenote,thecoefficientispositiveitmeanstherelationbetweenXandYispositiveorX
hasapositiveeffectonY.IfyoufindanegativevaluethenitmeanstheyhaveanegativerelationorXhas
negativeimpactonY.
(9)standarderrorfor1.025555.sameexplanationas(4)
(10)Tstatisticsfor1.025555.sameexplanationas(5)
(11)PvalueofTstatistics(1.025555)sameexplanationas(6)
note,herePvalueis0.0000thisissmallerthan0.01.itimpliesthatthethecoefficient1.025555isstrongly
significant(at1%significantlevel).NowyoucansayvariableXsignificantlyaffectsY,orVariableXhasa
statisticallysignificanteffectonY.

(12)Rsquared:
Itisalwaysbetween0and1andgenerallypositive.Ittellsyouhowmuchsuccessfulyourmodelisin
predicting.AhigherRsquareisbetter.InverypoormodelRsquareisclosetozerolike0.03etc.R
squaredisfoundtobe0.79193.itimpliesthatabout79%ofchangesinYareexplainedbythechangesin
independentvariableX.
(13)Adjustedrsquare:
ItisalwaysequaltoorsmallerthantheRsquared.ItdoesthesamejobasRsquareddoes,measuring
howmuchgoodyourmodelisinpredicting.ButithasaSpecialty,thatis,ifyouaddmorevariableeven
irrelevantvariableRsqureincresasebutadjustedrsquaedoesnt.ThereforeadjustedRsquareiskind
ofsmarterthantheRsquare)
Thehighertheadjustedrsquare(closeto1)thebetterthemodel.Sometimesinaverypoormodel
adjustedRsquarebecomenegative.Anegativersquareisconsideredaszerorsquare.
(14)and(14)S.E.ofregressionandSumsquaredresid.:
BothmeasurehowmuchtheestimatedYdifferfromactualY(actualYsarethevalueofYinYseriesof
yourdatafile).Ofcourse,youknow,itisnotgoodiftheydiffertoofarfromeachother.AsmallerS.E.of

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5/21/2017 ABriefInterpretationofOutputofSimpleRegressionHassan

regressionandasmallerSumsquaredresidarethebetterforanymodel.
Note:S.E.ofregressioniscalculatedbydividingtheSumsquaredresidwithdfhence,Inaregressionwith
verylargenumberofobservationS.E.ofregressionbecomeverysmall.
(15)Loglikelihood:
Itisusefulwhenyoucomparetwonestedmodels.Youllalwaysfindthisvaluenegative.ahighervalueis
betterforexample40isbetterthan90.Anegativevaluebutclosertozeroindicatesabestfittingmodel.
Andyouwillchooseamodelfromtwomodelsthathasahigherloglikelihood.
(16)Fstatistic:
Itisusedfortestingtheoverallsignificanceofamodelspeciallyinamodelwhereindependentvariablesare
morethanone.Doalltheindependentvariablesinthemodelsignificantlyaffectthedependentvariable?F
statisticswillanswerthisquestion.IfFstatisticsisgreaterthantheFcriticalthenyoucansaythatallthe
variablesaresignificant.(theFcriticalvaluesareavailableinlastpagesofEconometricsandStatistics
books)
(17)Prob(Fstatistic):
HoweveryoudontneedtocheckFstatisticandFcriticalvalue.BylookingtotheProb(Fstatistic)youcan
easilycheckoverallsignificanceofallindependentvariables.IftheProb(Fstatistic)isequalorsmallerthan
0.01youcansaythatallthevariablesjointlyinthemodelsignificantlyaffectdependentvariableat1%
significancelevel.Ifitisequalorsmallerthan0.05youcansaythatallthevariablesjointlyinthemodel
significantlyaffectthedependentvariableat5%significancelevel.Andifitisequaltoorsmallerthan0.10
thistimeyoucansaythatallthevariablesjointlyinthemodelaresignificantlyaffectdependentvariableat
10%significancelevel.

(18)Meandependentvar:
simplyitistheaverageofYthedependentvariable.
(19)S.D.dependentvar:
itmeasureshowmuchthevaluesofYdifferefromitsaveragevalue.

(20)Akaikeinfocriterion(21)Schwarzcriterion(22)HannanQuinncriter:
TheyarecalculatedwithalmostsameformulasusingloglikelihoodandarecalledMODELSELECTION
CRITERIA.Smallervaluesarepreferred.Ifyouhavedifferentmodelstocompare,Apreferredmodelisthe
modelwithsmallervalueof(AIC),(SC)and(HQ)orwithsmallervalueofanytwoofthem.HoweverAIC
isbestusedforTimeseriesmodels.

(24)DurbinWatsonstat:
Ittellsuswhetherourmodelsufferserialcorrelationproblem
Ifitiscloseto2Noserialcorrelationinthemodel
Ifitiscloseto0positivecorrelationinthemodel
Ifitiscloseto4Negativecorrelationinthemodel
ItisbetterifwegettheDurbinWatsonstatnearto2suchas1.70,2.01,2.20etc.Inourmodelwe
found1.69882indicatingnoserialcorrelationinthemodel.

ImportantNote!
Thepurposeofthispostistogivethebasicideaabouttheresultsofasimpleregressionmodelcomputed
byEconometricsoftware.(IhaveusedEviews).So,someofmycommentsaboutsomeresultsaretoo
straightforward.Forexamplea''higherRsquareisbetter''doesnotmakesenseifyouaredealingwithnon

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5/21/2017 ABriefInterpretationofOutputofSimpleRegressionHassan

stationaryvariables.

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