The Australian Economic Review, vol. 38, no. 3, pp.

333–50

For the Student

Descriptive Methods for Cross-Section Data

Joe Hirschberg, Lan Lu and Jenny Lye*

Department of Economics, The University of Melbourne; Department of the
Treasury, Canberra; and Department of Economics, The University of Melbourne,
respectively

1. Introduction the majority of graphic representations of data

Econometric analysis often results in highly
specialised quantitative results.1 However, as
the old mantra of the computer programmer
states, GIGO—‘garbage in garbage out’ which
applies here with respect to the nature of the
data used in the analysis. Thus it is crucial to
examine the data used in analysis prior to the
application of computational analysis. In addi-
tion, to paraphrase an old adage, ‘one graph is
worth a thousand numbers’—the human eye
can analyse data better in a visual format than
in a tabular form. To serve both of these ends it
is important to understand how graphic meth-
ods can be used to check and to carefully look
at data before performing econometric analy-
sis.
Computer-driven pen plotters were one of
the first additional output peripherals attached
to computers back in the era of the mainframe
systems. Prior to the availability of computers
were done by hand. Today the wide availability
of graphic screens, laser printers and such soft-
ware as Microsoft Excel has made the produc-
tion of graphic representations of data almost
automatic. The purpose of this article is to ex-
amine which graphs should be used for what
purpose and to demonstrate how some of the
most popular software packages can produce
graphic images that will aid in the interpreta-
tion of statistical analysis.
To illustrate why it is so crucial to examine
the data we show two simple examples where
we wish to run a regression. First, consider the
regression results presented in Table 1. Based
on the values in this table it looks like a very
good model with a highly significant t-statistic
associated with the explanatory variable and a
high R2 indicating that it explains a large pro-
portion of the variation in y.
However, in Figure 1 a scatter plot of the
data reveals that the data fall clearly into two

Table 1 Regression Results for Example 1

(dependent variable: y; sample: 136)
Variable Coefficient Standard error t-statistic P-value
c 1.11 0.60 1.85 0.07
x 1.29 0.08 17.08 0.00

R-squared 0.89
Standard error of regression 2.07
F-statistic 291.58
Probability (F-statistic) 0.00

* We would like to thank David Moreton for helpful suggestions and the Quality of Teaching Committee of the Faculty of
Economics and Commerce at the University of Melbourne for financial support.

©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
Published by Blackwell Publishing Asia Pty Ltd
334 The Australian Economic Review September 2005

Figure 1 A Scatter Plot of the Data for Example 1
Figure 2 The Implied Dumbell
for the Data for Example 1
Figure 3 A Scatter Plot of the Data for Example 2
subgroups indicating the presence of a ‘dumb-
bell’ plot as shown in Figure 2. Note that if the
data in each subgroup are fit as separate mod-
els, the R2’s obtained from the separate regres-
sions are very close to 0.
The regression results for the second exam-
ple are presented in Table 2. These results ap-
pear to show that there is not a significant
relationship between y and x and the regression
has a very low R2. With results such as these it
is often the case that one would assume that
these variables have no relationship to one an-
other.
However, a scatter plot of x and y in Figure 3
indicates that there is a unique well-defined re-
lationship between them. To estimate the pa-
rameters of this relationship would require a
model that does not assume linearity.
Many other authors have found examples
similar to those presented here. Two worth
mentioning are by Anscombe (1973) and
Leamer (1994). In Anscombe (1973) four
datasets each consisting of 11 data points on y
and x are examined. For each of the four
datasets the same results from an ordinary least
squares regression including the estimated co-
efficients and R2 are obtained. However, when
the data are plotted for each of the four
datasets, differences between the datasets such
as outliers and non-linearities can be seen.
Leamer (1994, p. xiii) presents an example in
which a consumption function is estimated
using hypothetical expenditure and income
data. The results of the ordinary least squares
regression look very good with a high R2 and a
coefficient of the right sign. However, a scatter
plot of the data reveals the data spell out the let-
ters H E L P.

Table 2 Regression Results for Example 2

(dependent variable: y; sample: 1100)
Variable Coefficient Standard error t-statistic P-value
c 0.07 0.85 0.09 0.93
x –0.07 0.12 –0.14 0.89

R-squared 0.00
Standard error of regression 8.51
F-statistic 0.02
Probability (F-statistic) 0.89

©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data
The inspection of the data prior to running a
regression is strongly encouraged in numerous
econometric textbooks. For example, see
Kennedy (2003, p. 408), Koop (2000, pp. 12–
20), Pindyck and Rubinfeld (1998, p. 45),
Greene (2003, pp. 878–81) and Griffiths,
Carter Hill and Judge (1993, p. 22). However,
in many cases the discussion is limited to the
construction of histograms and scatter plots.
The aim of this article is to provide a detailed
student guide to useful methods of summaris-
ing and examining raw cross-section data
before attempting to apply sophisticated
econometric techniques.2
To illustrate the techniques presented we use
detailed data for Dominick’s Finer Foods su-
permarkets. A research project at the Univer-
sity of Chicago has made available a set of
detailed data for the Dominick’s supermarkets
located in metropolitan Chicago.3 We use
these data to create average daily sales by de-
partment for a set of 84 stores for which the
data are relatively complete—at least three
years of data are used for each store. In addi-
tion to the sales for each store, the data also
contain information obtained from the US
Census to describe the population in the neigh-
bourhood in which the store is located and
some additional marketing information con-
cerning the nature of the customers in the
store.
Various univariate methods for investigating
the individual series are discussed first. In Sec-
tion 2 we define a number of descriptive statis-
tics that numerically summarise the properties
of a single variable. In Section 3 we demon-
strate how graphic displays for the nature of the
distribution of the series can be generated. The
first of these distribution plots is the box plot.
This is a very useful summary in graphic form
of the overall shape of the distribution of the
data. The next method is the histogram which
provides more detail. Here we introduce the
method by which we can compare the series
distribution to the normal distribution using a
simple overlay. Following the histogram we
introduce the kernel density estimate or
smoothed histogram. This provides a more ac-
curate estimate for the distribution of a contin-
uous variable.
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
335
The estimation of the density for the contin-
uous random variable is often not sufficient.
Because the normal distribution acts as a
model on which many statistical tests rely, it is
important to determine how the distribution for
the series compares to a known distribution
such as the normal. Q-Q plots and P-P plots
provide a means of comparing series distribu-
tions to a standard distribution while also iden-
tifying the observations that do not conform
and these techniques are presented in Section
4.
Sections 5 and 6 discuss graphical tech-
niques for analysing multivariate data. The re-
lationship between two series is the focus of
Section 5 and the use of the correlation coeffi-
cient and the scatter plot is examined. Whereas
the correlation coefficient only indicates the
presence of a linear association, the scatter plot
can highlight the presence of a non-linear rela-
tionship between the variables or the presence
of outliers. Section 6 discusses two graphical
techniques that can be used to look at a group
of variables at a time. Side by side box plots si-
multaneously display the distribution of a
group of variables so that distributions and
their properties can be compared between the
variables. The matrix scatter plot is a graphic
analogue to the correlation matrix and is a use-
ful method of tracking particular observations
across a group of variables.
An important use of graphs is to find patterns
in the data. Therefore graphs need to be clear
and well presented and often this requires
changing the default options available in
graphic routines in computer programs. In Sec-
tion 7 we illustrate the steps involved in chang-
ing the visual impact of a graph obtained using
the default options in Microsoft Excel. Section
8 discusses statistical packages with particular
emphasis on widely used software packages for
graphics in econometrics. Section 9 concludes
the article.
2. Descriptive Statistics
A number of descriptive statistics are used to
summarise the properties of a single variable x
with n observations in terms of its location, dis-
persion and shape. The most common of which
336 The Australian Economic Review September 2005

is the mean. The mean is a statistical term for Table 3 Descriptive Statistics for Produce Sales
the average and is defined as: Measure Statistic
Mean 5573.97
1 n
x = --- ∑ x i (1) Median 5575.83
ni = 1
Variance 3321618.56
where the xi are the observations and n is the Standard deviation 1822.531
number of observations. Another measure of Minimum 2083.79
central tendency is the median which if n is an Maximum 12660.69
even number is defined as: Skewness 1.070
Kurtosis 5.508
x[(n ⁄ 2) – 1] + x[(n ⁄ 2) + 1]
median = ----------------------------------------------------- (2) Jarque-Bera 38.03
2

and if n is odd is defined as:

distributed. The test statistic measures a combi-
nation of the skewness and kurtosis of the se-
median = x [ ( n + 1 ) ⁄ 2 ] (3)
ries with those values that would be implied if
the data were generated by a normal distribu-
For symmetric distributions the mean and me-
tion and is computed as:
dian will be equal to each other. The dispersion
is usually measured by the standard deviation
skewness 2 ( kurtosis – 3 ) 2
(or variance s2) which is defined as: JB = n -------------------------- + ------------------------------------- (7)
6 24
n
∑ ( xi – x )2 Under the null hypothesis of a normal distribu-
i=1 tion the Jarque-Bera statistic is distributed in
s= ----------------------------- (4)
(n – 1) large samples as χ2 with 2 degrees of freedom.
A number of other statistics can also be com-
The shape of the distribution of observations is puted, such as the minimum, the maximum, the
also often of interest. Measures usually re- percentiles and the range of the series. Table 3
ported include skewness: lists a number of descriptive statistics for the
n
average daily Produce Sales for a set of super-
∑ ( xi – x )3 markets from the Dominick’s database. From
Table 3 the values of the mean and median are
skewness = i----------------------------
=1
- (5)
s3 ( n – 1 ) very similar. The Jarque-Bera test can be cal-
culated as 38.03. The value of the χ2 with 2
and kurtosis: degrees of freedom at the 0.01 level of signifi-
n
cance is 9.21 indicating a strong rejection of
∑ ( xi – x )4 the null hypothesis that Produce Sales are nor-
mally distributed. However, this is not very in-
kurtosis = i----------------------------
=1
- (6)
s4 ( n – 1 ) formative and we have produced a series of
plots to investigate the implications of this test
For a symmetric distribution the benchmark for further.
skewness is 0 and for a normally distributed
random variable kurtosis is equal to 3. If the 3. Distributions
kurtosis exceeds 3, the distribution is peaked
relative to the normal; and if the kurtosis is less There are a number of useful methods for de-
than 3, the distribution is flat relative to the nor- scribing the distribution of a single variable. In
mal. this section we summarise the use of the box
The Jarque-Bera test is a widely used statis- plot which graphically presents the quartiles
tic for testing whether the series is normally of the data, the histogram which attempts to
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data
provide a rough shape to the density form, and
the density plot which is a smoothed version
of the histogram.
3.1 Box Plots
The box plot provides a summary display of the
distribution of the data (Chambers et al. 1983)
by graphically showing quartiles of the data. It
shows the centre of the distribution (the median
or 50th percentile (Q0.50)), the spread of the
bulk of the data (the length of the box which is
the distance from the 25th percentile (Q0.25) to
the 75th percentile (Q0.75)), and how stretched
the tails of the distribution are (the length of the
lines relative to the box). Additional values that
are greater than the limits are plotted as well. In
addition, some box plot programs also have op-
tions to locate the mean of the data and the 95
per cent confidence bounds of the mean.
In Figure 4 a simple box plot is illustrated for
Produce Sales. The top and bottom of the rect-
angle represent the upper and lower quartiles of
the data and the centre line within the rectangle
is the median which is equal to $5576. The
upper and the lower quartiles are found by or-
dering the data and finding those values that
limit the upper 25 per cent and the lowest 25
per cent. Thus the interquartile range (IQR) is
the range between the upper and lower quar-
tiles IQR = Q0.75 – Q0.25; for Produce Sales,
IQR = $2529.
The lines that extend from the ends of the
box (sometimes referred to as whiskers) go to
what is referred to as the ‘upper adjacent value’
Figure 4 Box Plots of Produce Sales
N = 84
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
337
and the ‘lower adjacent value’. The upper adja-
cent value (xua) is defined as either the largest
observation [max(x)] if it is less than or equal
to the upper quartile plus 1.5 times the inter-
quartile range or xua = min[Q0.75 + 1.5IQR,
max(x)]. For Produce Sales, xua = $8359. The
lower adjacent value (xla) is either the smallest
observation if it is greater than or equal to the
lower quartile minus 1.5 times the IQR or 1.5
times the IQR or xla = max[Q0.25 – 1.5IQR,
min(x)]. Thus for Produce Sales, it is the small-
est value, $2084.
Any data points that fall outside the range of
the two adjacent values are referred to as out-
side or outlier values and are plotted as an indi-
vidual point. In the case of Produce Sales, there
are two outside values, observations 62 and 84,
which are respectively the sales values of store
109, $11895, and the sales value of store 137,
$12661. If there are outside values it may be
necessary to go back to the source of the data to
verify that these values are valid. In this case
these two extreme values are for two large
stores which both have more than $94000 in
total average daily sales while the mean of total
average daily sales is $56046.
The width of the box plot is arbitrary which
means that multiple box plots could be placed
side by side to allow for comparisons between
groups of data. We will examine this use of the
box plot further in Subsection 6.1 when we dis-
cuss multivariate plotting techniques.
3.2 Histograms
Another way to summarise a data distribution
is the histogram or density plot for data that
take discrete values. The range of the data is
partitioned into several intervals of equal
length, the number of points is counted in each
interval and plotted as bar lengths in a histo-
gram (Chambers et al. 1983). The vertical axis
shows the proportion of the observations in
each bar and the relative heights of the bars
represent the relative density of cases in the in-
tervals. For Produce Sales, there is one store
that sells around $2000 and two stores that sell
more than $9000, as shown in Figure 5. The
Produce Sales of most stores are between
$3000 and $9000.
338 The Australian Economic Review
Figure 5 Histogram of Produce Sales
Figure 6 Histogram of Produce Sales
with Six Intervals
The histogram is widely used because of its
simplicity. However, histograms can give very
different visual impressions due to the arbi-
trary choice of the number and placement of
intervals. For the same sales data, the histo-
gram in Figure 5 has 22 intervals and the histo-
gram in Figure 6 has six intervals. The more
intervals, the more detail the histogram shows.
However, one should always be aware that
these details may not be features of the data
but merely artefacts generated by the place-
ment of the intervals. This should be taken into
account when choosing the number of inter-
vals.
The histogram overlaid with a normal curve
can help detect outliers (Henry 1995). The nor-
mal curve is the density of a normally distrib-
uted random variable with the same mean and
standard deviation as estimated for the data
(mean = 5574 and standard deviation =
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
September 2005
1822.53) as defined by the formula for the esti-
mated normal density as given below:
1 –( z – x )2
f̂ N ( z ) = ----------------- exp --------------------- (8)
2 πσ̂ 2 2s 2
where x = 5574, s2 = (1822.53)2, z is the value
at which the density is evaluated and x is the
data in the sample. In Section 4 below we dis-
cuss more formal methods for making this
comparison to other densities.
It is not uncommon that samples of real data
include a small fraction of observations that lie
outside the typical range of the data. The histo-
gram illustrated in Figure 5 shows the two out-
lying values for stores 109 and 137 as
identified from the box plot in Figure 4. This
demonstrates that the box plot may be more
useful than a histogram in identifying the loca-
tion of these outliers.
3.3 Kernel Density Estimation
To estimate a density is to construct a probabil-
ity model of the stochastic process that gen-
erated the observations from a sample of
continuous data. One method already men-
tioned above involves assuming the data are
distributed according to a well-defined density
function, such as the normal, and the parame-
ters of the density function are estimated by
statistics calculated from the data. By plugging
these values into an expression such as (8) we
have an exact formula for the density under the
assumption that the data are indeed distributed
according to the particular distribution. Unfor-
tunately, as we see from Figures 5 and 6, the
histogram of the data may not indicate that a
distribution such as the normal is appropriate.
In Section 4 we discuss formal methods for
comparing the distribution of a sample to those
distributions implied by various assumed dis-
tributions.
The histogram is one of the most common
methods of density estimation that does not
rely on the assumption of a particular density
function. For data with only a finite set of dis-
crete values the histogram is the primary
method. However, as outlined above, when ap-
plying histograms to continuous data a number
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data 339

of problems arise. First, histograms, unlike the be selected. Commonly the choice of K(•) will
data-generating process, are not continuous; be a function that defines a symmetric unimo-
they assume that all values within an interval dal probability density function and hence it
have the same probability of occurring. Sec- will follow that f̂ K ( z ) will itself be a probabil-
ond, it is quite possible to obtain quite different ity density function and will inherit all the con-
looking histograms for the same data by chang- tinuity and differentiability properties of the
ing the length of the interval used and by kernel K(•).
changing their locations. One can think of the histogram as a form of
One commonly employed alternative ap- kernel density estimate where the density is
proach is to use the kernel density estimator. only evaluated at the midpoints of the intervals
The kernel is a weighting function which is de- and the bandwidth is half the interval size. We
fined for each point at which the density is define the kernel as K(ui) = hI( u i ≥ 1), where
evaluated. The kernel density estimator is de- ui = (1/h)(xi – z) and I(•) is an indicator function
fined as: that takes a value of 1 if its argument is true and
0 otherwise. This means that whenever an ob-
1 n z – xi
f̂ K ( z ) = ------ ∑ K ⎛ ------------⎞
servation satisfies the inequality defined as
(9)
nh i = 1 ⎝ h ⎠ x i – z ≤ h it is included in the interval with a
midpoint at z. The estimated density for the his-
where x1 … xn are the observations in the sam- togram defined in the form of a kernel density
ple, f̂ K ( z ) denotes the estimated density func- estimator is given as:
tion, z is the value at which the density is being
evaluated, h is the bandwidth (also known as 1 n
f̂ H ( z ) = ------ ∑ hI ( u i ≤ 1 )
the smoothing parameter or window width) nh i = 1
and K(•) is the kernel function. z is usually a
1 n
value within the span of the values of the sam- = --- ∑ I ( x i – z ≤ h ) (10)
ni = 1
ple but could be outside the range of the values
of the sample; recall that in (8) we defined the
A widely employed kernel function is the
normal density which is defined over all values
Epanechnikov function (Epanechnikov 1969)
from –∞ to ∞. The bandwidth (h) is similar to
which has the form:
the width of the intervals in the histogram and
determines the smoothness of the density esti-
3
mate. The kernel function is a weighting func- K(ui) = --- ( 1 – u 2i )I ( u i ≤ 1 ) (11)
4
tion and is generally chosen so that less weight
is placed on observations that are further from
where again we use ui = (1/h)(xi – z). Note
z than is placed on those that are near. That is,
that only those observations which satisfy the
the distance from z, defined for a symmetric
kernel function as z – x i (the absolute value of
the difference between z and xi), takes larger
Figure 7 The Epanechnikov Kernel
values the closer xi is to z and smaller values
when they diverge from each other. When we
use (8), the normal distribution, to approximate
the density we downweight the density for
those observations that are further from the
mean of the sample. We also divide the dis-
tance from the mean by the variance which
makes the estimated density flatter in shape in
much the same way that larger values of the
bandwidth imply a smoother density.
To implement the kernel estimator a smooth-
ness parameter h and kernel function K(•) must
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
340 The Australian Economic Review
criterion that u i ≤ 1 are included in the com-
putation of the density estimate for z. A graph
of the Epanechnikov function is given in Fig-
ure 7. In Figure 7, as z → xi, then ui → 0 and
K(ui) reaches its maximum value.
There are numerous other kernels that have
been suggested; for example, the biweight ker-
nel:
15 2 values of h and then choose the estimate which
K(ui) = ------ ( 1 – u 2i ) I ( u i ≤ 1 )
16
and the uniform kernel:
1 data is not masked by too large a value for h,
K(u) = --- I ( u i ≤ 1 )
2 without making the artefacts in the particular
We can also base the kernel density estimate on
the normal density functional form by using the
normal kernel function defined as:
1
K(u) = ----------exp ( – 0.5u 2 )
2π
Although the normal density has a well-known
form, it has the potential disadvantage that out-
liers in the sample may influence the density
estimate for a certain value even when they are
a great distance away. It also has the property
that f̂ K ( z ) ≠ 0, ∀z ∈ R or that the estimated
density is never equal to zero no matter where
it is evaluated on the real line.
Silverman’s (1986) monograph is an impor-
tant reference for a more detailed discussion of
these functions. Silverman comments that on
the basis of efficiency measures there is very
Figure 8 Histogram of Produce Sales
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
September 2005
little to choose between the various kernels and
it is quite appropriate to base the choice of ker-
nel on which is easiest to compute.
Bandwidth (h) selection is crucial in density
estimation as it controls the smoothness of the
density estimate. The larger the value of h the
smoother f̂ K ( z ) . There are various ways of
choosing h. One possibility is to plot out sev-
eral values of f̂ K ( z ) corresponding to different
(12)
meets with the prior expectation about the den-
sity. As with the choice of interval size/number
with histograms, the choice of the bandwidth
should be made so that the complexity of the
(13)
sample into prominent features. Silverman
(1986) provides a general formula which he
claims works well for a variety of cases based
on the interquartile range (IQR), the estimated
standard deviation (s), and the sample size (n):
(14)
h = 0.9n –1 ⁄ 5 min ( s, IQR ⁄ 1.34 ) (15)
In Figure 8 a histogram of Produce Sales is
presented. The width of the intervals case is
given as $1000. Given the location and size of
these bins we have an indication of a bimodal
probability function and a small probability of
quite large values.
In Figure 9 the kernel density estimate is
plotted by the Eviews computer program using
the Epanechnikov kernel and a bandwidth (h)
of 1000. A comparison shows that the kernel
density estimate is much smoother than the
histogram although they both show similar
Figure 9 Kernel Density Estimate of Produce Sales
Kernel
K e rn e lDDensity (Epanechnikov,
e n sity (E p a n e ch n iko v,hh =
= 1000.0)
1 0 0 0 .0 )
.0 0 0 2 4
.0 0 0 2 0
.0 0 0 1 6
.0 0 0 1 2
.0 0 0 0 8
.0 0 0 0 4
.0 0 0 0 0
4000 8000 12000
Produce
P ro d u ceSales
S a le s(Fruit
(fru itand
a n d Veg)
V eg )
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data
Figure 10 A Comparison of Kernel
Density Estimates with Different Bandwidths
Kernel Density (Epanechnikov)
Produce Sales (Fruit and Veg)
characteristics. However, the probability of
generating a value in the intermodal range ap-
pears greater from the kernel density estimate
than from the histogram. When working with
estimated density functions one must remem-
ber that the vertical axis, unlike in the histo-
gram, does not measure probability. Because
these are density functions for continuous data
the probability of values can only be deter-
mined from the area under these functions for a
particular span of values. Thus the units of
measure for the variable of interest will influ-
ence the values on the vertical axis.
Figure 10 plots several kernel density esti-
mates for Produce Sales using different band-
widths including h = 1488.1 which is the
automatic value generated by using (15). Note
that as the bandwidth gets larger the density es-
timate becomes smoother and in particular the
bimodality and the hump in the tail features
disappear. Thus it is necessary to be cautious
when smoothing that important information is
not removed from the resulting density esti-
mate.
Another issue in the estimation of densities is
the location (z’s) at which the estimated density
is evaluated. Usually the points chosen for
evaluation are evenly spaced values within the
range of the sample. Note that if we used a ker-
nel function that is not constrained to be zero
by the indicator function as in the case of the
normal distribution, it is possible for the kernel
density estimator to indicate a probability of
having observations greater or less than the
limits of the sample. This can also be the case
when the random variable has a limiting value
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
341
Figure 11 The Sensitivity of Kernel
Density Estimates to Variations in the
Number of Points Used to Evaluate Them
Kernel Density (Epanechnikov, h = 1488.1)
Produce Sales (Fruit and Veg)
such as a price that can only be positive. In gen-
eral, the more points the estimated density is
evaluated at, the smoother is the estimate. In
Figure 11 the line with dot points represents a
kernel density estimate constructed by evaluat-
ing the density at only 10 points, whereas the
continuous line represents the kernel density
estimate when the density is constructed using
100 points.
The estimation of density functions for con-
tinuous data has been facilitated by the advent
of computer programs such as Eviews. Aside
from the graphical uses of these estimates one
could also use these programs to obtain the val-
ues of these densities f̂ K ( z ) at each value of z.
4. Assessing Distributional Assumptions
As noted above an alternative to allowing the
data of the sample to dictate the density of the
data is to assume a well-defined distribution for
the data-generating process. As shown in (8)
the estimated mean and standard deviation of
the sample could be used along with the as-
sumption of the normal density function to pro-
duce an estimated density for a particular
sample. In this section we discuss various
graphical methods to compare the distribution
of a sample to alternative distributions. They
can be used to compare the distribution of a
particular sample to another sample or they can
be used to compare the distribution of a sample
to a specific distribution such as the normal.
342 The Australian Economic Review September 2005

4.1 Q-Q Plots Figure 12 Q-Q Plot of Produce Sales

Q-Q plots are often called theoretical quantile-

quantile plots or probability plots (Chambers et
al. 1983). A particular quantile, for example the
0.85 quantile, of a set of data is defined to be a
number on the scale of the data that divides the
data into two groups so that 85 per cent are
below and 15 per cent are above that number.
A convenient method of finding the quantiles
or the empirical cumulative distribution is to
take the sample of observations x1 … xn and or-
dering the data from smallest to largest obtain-
ing the sorted data x(1) … x(n). The quantiles
Q(pi) are then defined as:
the test distribution predicts that these values
pi = --- ⎛ i – ---⎞
1 1
i = 1 to n (16) would have a greater probability of being ob-
n ⎝ 2⎠ served.
From Figure 12 one can find those observa-
This means that if there is a sample of size n
tions that deviate from the diagonal line in the
then the npi value of the sample when sorted
Q-Q plot and identify those cases where the
from highest to lowest value is the Q p of the
i data do not conform to the test distribution. In
data. For example, if n = 120 the Q0.1 = x(12)
this case we have a Q-Q plot of Produce Sales
(the 12th observation), if n = 500 the Q0.05 =
(generated by the SPSS program) compared to
x(25) and so forth. Thus the quantiles can be de-
the test distribution defined as the normal. The
termined simply by sorting the data.
two points identified in Figure 4 are identified
The Q-Q plot is constructed by plotting the
here as observations that are not consistent
quantiles of the sample data against the corre-
with the assumptions that the sample has been
sponding quantiles of another distribution
generated by a normal distribution. Apart from
which can be defined by a particular distribu-
these observations the rest of the data are not
tion or another dataset. It is generally used to
that different from what one would expect from
determine whether the distribution of data
normally distributed data except that at the left
matches a given distribution, which can be any
tail of the data the normal would generate more
of a number of test distributions (for example,
data in the lower end of the data and the right
normal, lognormal, student’s t and uniform).
tail of the data appears to have more mass than
Thus the plot has on one axis the empirical cu-
the equivalent normally distributed sample.
mulative probability based on the sorted value
of the sample and on the other axis the pre-
4.2 P-P Plots
dicted cumulative probability if the data were
generated by the test distribution based on the
P-P plots are very similar to Q-Q plots; the only
parameters of the distribution as estimated
difference is that the values are translated into
from the sample data. If the data are generated
the corresponding cumulative probabilities in-
by the test distribution, the points plotted
stead of listed as the values of the random vari-
should lie along a 45-degree line from the ori-
able. That is, for the ordered sample of
gin. The deviations from the line indicate
observations from smallest to largest, x(1) …
where the empirical distribution does not
x(n), a variable’s cumulative probability is de-
match the test distribution. If they are above the
fined as:
line then the empirical distribution has a
greater mass here than the test distribution i
Prob[x ≤ x(i)] = --- (17)
would predict. If they are below the line then n
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data
Figure 13 P-P Plot of Produce Sales
Normal P-P Plot of Produce Sales (Fruit and Veg)
Expected Cum Prob
Observed Cum Prob
These are then plotted against the cumulative
probability of any of a number of test distribu-
tions. If the selected variable matches the given
distribution, all the points will lie on the 45-
degree line out of the origin. Again as in the Q-
Q plot, departures from this line give us infor-
mation about how the distribution of the
selected variable differs from the test distribu-
tion.
Figure 13 is the corresponding P-P plot to the
Q-Q plot in Figure 12 (generated by SPSS).
Note that the rescaling of the data means that
the two outlier points are now represented by
the two observations that are predicted by the
normal to have a cumulative probability of 1.
In the reverse interpretation from the Q-Q plot,
the points plotted above the line indicate that
the probability of their occurrence in the nor-
mal distribution is higher than they actually are
and the points below the line have a lower pre-
dicted probability than they actually are.
5. Analysing Two Dimensional Data
Box plots, histograms, kernel density estima-
tors, Q-Q plots and P-P plots are all useful tech-
niques for describing the behaviour of a single
variable. In this section, methods used to exam-
ine the relationships between pairs of variables
will be discussed. We look at correlation coef-
ficients and their graphic counterparts—scatter
plots (also known as XY plots).
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
343
5.1 Correlation Coefficient
The correlation coefficient is the most com-
monly employed statistic used to quantify the
relationship between two variables x and y. It is
defined as:
n
∑ ( xi – x ) ( yi – y )
i=1
r = -------------------------------------------------------------------
- (18)
n n
∑ ( xi – x )2 ∑ ( yi – y )2
i=1 i=1
where x and y are the sample means of the n
observations on x and y. The value of r lies be-
tween –1 and 1 and measures the linear associ-
ation between x and y. If r = 0 there is no linear
association; if r = 1 there is a perfect positive
linear relationship; and if r = –1 there is a per-
fect negative relationship. The correlation co-
efficient which corresponds to the relationship
between Produce Sales and the Total Average
Daily Sales is found to be 0.905 which indi-
cates a strong relationship. It can be shown that
simple bivariate regression is closely related to
the concept of correlation. The R2 statistic that
indicates the degree of fit for the regression is
equal to the square of the correlation between
the dependent and independent variables.
5.2 Scatter Plots
A simple scatter plot is a graph of one of the se-
ries on the horizontal axis against the other se-
ries on the vertical axis. It is a useful method
for analysing the relationship between two
variables. For example, it may highlight a non-
linear relationship between two variables or it
may highlight the presence of outliers. An ex-
tension of the simple scatter plot is to also in-
clude in the graph the fitted regression line
resulting from the ordinary least squares esti-
mation of the two variables.
In Figure 14 the scatter plot of Produce Sales
against Total Average Daily Sales is illustrated.
From this figure it can be seen that there is a
positive relationship between Produce Sales
and Total Average Daily Sales. Also in this fig-
ure a number of observations have been high-
lighted which correspond to observations that
344 The Australian Economic Review
Figure 14 Scatter Plot of Produce
Sales and Total Average Daily Sales
may potentially be outliers. In particular, two
of these observations are observations that
have been highlighted in the Q-Q and box plots
for Produce Sales. Thus the two stores corre-
sponding to these observations have high Pro-
duce Sales and high Total Average Daily Sales.
This may indicate that for these two stores their
Produce Sales are in fact a large component of
their total sales. Note that the type of relation-
ship shown in Figure 1 is not present in this
case, thus we can conclude that although the
correlation coefficient is high it is not due to
the presence of a ‘dumbbell’ effect.
To demonstrate why the scatter plots provide
additional information we examine two more
scatter plots in Figure 15. In both of these cases
Figure 15 Two Scatter Plots with Correlation Coefficients Equal to 0.70
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
September 2005
the correlation coefficients between the x and y
variables is around 0.7, yet the scatter plots
show quite different relationships between the
variables. Thus the relationship between them
is not as well established by the correlation co-
efficient as the scatter plot.
In the introduction of this article we pre-
sented two examples of simple regressions
where the scatter plot told the story that the re-
gression estimates did not. In the first example
we found that the correlation was quite high but
that this was due to a ‘dumbbell’-type relation-
ship. In the second example we determined
from the regression that the correlation was
very low but, just as in the second plot in Fig-
ure 15, the plot indicated a prominent relation-
ship between the variables.
6. Multivariate Techniques
The examination of the relationships among a
group of variables is frequently the objective of
our analysis. Even if this is the case it is still
useful to begin by looking at each variable in-
dividually, paying attention to such things as
skewness, kurtosis, outliers, distributional as-
sumptions and so on. The techniques described
above in Sections 3 and 4 are useful for this
purpose. However, there are other graphical
techniques that can be used to look at a group
of variables at a time. In this section two such
techniques will be described. The first is side
by side box plots and the second is the graphic
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data 345

analogue to the correlation matrix—the matrix Figure 16 Side by Side Box Plots
scatter plot.

6.1 Side by Side Box Plots

Side by side box plots are a collection of box

plots which display the distributions of a num-
ber of cases or variables in such a way that we
can compare not only the measures of central
tendency but the distributions of the variables.
As we mentioned above, the width of the box
plots is usually arbitrary so they can be scaled
in such a way that we can place them next to
each other as long as the ranges of the values
are similar in magnitude so they can be plotted
against a common vertical axis.
In Table 4 we have listed the descriptive sta-
tistics for a set of seven different sections of the
supermarkets in the sample. From this table it
is hard to determine aside from the order of the
means how the sales in each department com-
pare.
In Figure 16, the side by side box plots pro-
duced by Eviews are shown for a selection of
different departments in our sample of super-
markets in which the boxes are ordered by the
level of the median of sales values (note the
stars show the location of the mean values).
This figure allows us not only to compare the
median values but also the interquartile dis-
tances for each department. For example, this
figure shows that the highest sales in the Health
and Beauty department are within the lower 25
per cent of the Produce Sales. Also, it shows
that Meat Sales are on average lower than Pro-
duce Sales but that the interquartile distance is
the same for the two departments.
6.2 Matrix Scatter Plots
This graph consists of an array of scatter plots
such that any adjacent pair of plots has an axis
in common. It is the graphical equivalent to the
correlation matrix. It is a useful method of
tracking an interesting point or group of points
across a series of variables. While any number
of variables can be included in such a graph it
should be remembered that it is often easier to
interpret a graph if it can fit onto a single page.
In Table 5 a correlation matrix for four vari-
ables is given. These variables are Grocery
Sales, Meat Sales, Produce Sales and Total Av-
erage Daily Sales.
Figure 17 is a matrix scatter plot using SPSS
of four variables used in the construction of
Table 5. In this graph the observations 62 and
84 are tracked in each scatter plot.
From Figure 17 the observations tracked are
outliers associated with Produce Sales. It is in-
teresting to note that from the matrix scatter
plot it looks like these are outliers for Produce

Table 4 Summary Statistics for the Daily Sales of Supermarket Departments

Standard
Number Minimum Maximum Mean deviation
Produce Sales (Fruit and Veg) 84 2083.79 12660.69 5573.97 1822.53
Meat Sales 84 2809.67 8491.62 5364.44 1491.95
Dairy Sales 84 1951.03 9012.87 4610.69 1374.85
Frozen Sales 84 1526.82 6659.48 3511.63 1085.45
Deli Services 84 1222.91 4316.47 2437.31 739.30
Health and Beauty Sales 84 396.42 4209.98 1910.75 962.47
Bakery Sales 84 508.33 2540.69 1437.96 462.06

©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
346 The Australian Economic Review
Table 5 The Correlation Matrix Corresponding to the Different Variables Plotted in Figure 17
Grocery Sales
Grocery Sales 1.00
Meat Sales 0.91
Produce Sales (Fruit and Veg) 0.87
Total Average Daily Sales 0.97
Figure 17 A Matrix Scatter Plot of Four Variables
Sales only. Note that if these stores were not in-
cluded when computing the correlation coeffi-
cient between Meat Sales and Produce Sales
one would expect this relationship to be stron-
ger. It is also of interest to note that in terms of
Total Average Daily Sales, Meat Sales and
Grocery Sales have a similar relationship
whereas it appears to be much steeper between
Total Average Daily Sales and Produce Sales.
A plot of this type can be included with a cor-
relation matrix of these variables to determine
whether the correlations found are due to out-
lier values or not.
7. General Principles of Graphical
Display
The value of using graphs in data analysis
comes when they show important patterns in
the data. For this purpose graphs need to be leg-
ible and well-designed plots. Modern software
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
September 2005
Produce Sales Total Average
Meat Sales (Fruit and Veg) Daily Sales
0.91 0.87 0.97
1.00 0.76 0.90
0.76 1.00 0.91
0.90 0.91 1.00
allows a lot of variation in the design of the el-
ements of the plots. It is possible to change the
shape, size, font, colour, darkness, orientation
and location along an axis of the graph to max-
imise its visual impact. In this section we
present an example of a scatter plot using the
default options in Excel and we demonstrate
what steps are involved in improving the visual
impact of this graph.
7.1 Default Scatter Plot
In Figure 18 we show the result of generating a
scatter plot between Dairy Sales (y axis) versus
Grocery Sales (x axis) by using the default op-
tions in Microsoft Excel. There are visual prob-
lems with the presentation of this graph:
confusing plot labels; the use of too much ink,
from the additional lines across the graph and
the background colour, that does not represent
data information; a lot of blank space caused by
forcing the origin of the x and y axes to be at
zero; and the use of large symbols for the plot-
ted points that obscure the location of the
points that are underneath. In this section we
demonstrate how one can change the default
options to improve the visual presentation
using Microsoft’s Excel program.
Figure 18 Default Scatter Plot
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data
7.2 Fixing Axis Labels
From the Chart Options dialogue box Titles is
chosen. In this set of options we remove Dairy
in Chart title and label the x axis Grocery and
the y axis Dairy. These steps are illustrated in
Figure 19. In addition, the label Dairy on the
right of Figure 18 in the legend box can be re-
moved by highlighting it and deleting it.
Figure 19 Chart Options Dialogue Box
7.3 Maximising the Data Images in the
Graph
Most of the ink on a graph should present data-
related information (Tufte 1983). In Figure 18
there is background shading and gridlines par-
allel to the x axis. To remove the gridlines from
the Chart Options dialogue box choose Grid-
lines and remove the check on Major gridlines
under Value (Y) axis. To remove the back-
ground click on the right-hand button on the
mouse and choose the Format Plot Area option
and select white as the colour. The result of
Figure 20 Maximising Share of Data
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
347
performing both of these actions is illustrated
in Figure 20.
7.4 Reducing Non-Informative Space
In Figure 18 the minimum of both the x axis
and y axis is 0, although the minimum value of
Grocery is around 10000 and the minimum
value for Dairy is around 2000. To change the
default minimum values click on a number on
the x axis and choose the Format Axis option.
Select scale and type the value 10000 as the
minimum for the x axis. Similarly, to change
the minimum value of the y axis, click on a
number on the y axis and choose the Format
Axis option. Select scale and type the value
2000 as the minimum for the y axis.
7.5 Reducing the Size of the Plotted Points
The last step is to click on the plotted points to
obtain the Format Data Series option. Within
this option by selecting Pattern the size of the
points can be made smaller. In Figure 21 the
final scatter plot is illustrated.
It is important to remember that there are
many statistical packages that provide a graph-
ics package, however it may be necessary to
change the default options associated with
these packages to obtain a graph that maxi-
mises the visual presentation. In some software
it is possible to save the options so that all the
plots in a series have a similar design.
8. Statistical Packages
Statistical packages have been available since
the mainframe computers became widely
Figure 21 The Final Scatter Plot
348 The Australian Economic Review September 2005

available for data analysis in the 1960s. The
earliest programs included rudimentary graph-
ics routines that produced what are often re-
ferred to as ‘printer plots’ and line graphs were
only available if one had access to purpose-
built plotters. These printer plots are still avail-
able in a number of programs and can provide
a convenient method for scanning large
amounts of data in that they can be produced
very efficiently and scaled with a single se-
lection command. With the widespread avail-
ability of graphics-capable computers—an
Figure 22 The Multiple Density Plots for Supermarket Sales
offshoot of the demand for the capability of
computers to play sophisticated computer
games—more and more statistics packages
have been written with graphics plotting soft-
ware. Microsoft Excel is a widespread program
for the generation of plots. Two widely used
software packages for graphics in economet-
rics are SPSS and Eviews (here we refer to ver-
sion 11.5 and version 5.0 respectively). Both of
these programs employ the point-and-click
menu-driven editing of the plot characteristics
of the most widely used PC software such as

©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
 Hirschberg, Lu and Lye: Descriptive Methods for Cross-Section Data
Microsoft Excel. Below we have listed the ca-
pabilities of Eviews and SPSS.
Eviews and SPSS have graphics editors that
allow changes to almost all aspects of the plot.
Once the initial plot has been created the plot
can be brought into the graphics editor. Both
Eviews and SPSS allow you to modify the font,
colour and scale of the axis—however SPSS
allows you to identify particular observations
as well as annotate the graph and to add refer-
ence lines wherever needed inside the graphic
area (see Figures 12, 14, 16 and 17 where par-
ticular observations are identified). In addition,
with SPSS multiple graphic images can be cop-
ied simultaneously and inserted into an MS-
Word document. SPSS also has the capability
of recording the particular modifications made
to a plot to a file so that new plots can be made
with the same format using what is referred to
as a ‘template’ file (an option also available in
Eviews). But a further feature of SPSS, which
is available after every command, is that it cre-
ates an exact ‘journal file’ which allows all the
point-and-click commands completed in a ses-
sion to be recorded to a ‘batch commands’ file
which can be read into the syntax window of
the program. In this window the file can be ed-
ited with a text editor so that multiple identical
runs can be made with the same data.
Eviews unlike SPSS will compute non-
parametric density estimates. In addition, in
Eviews multiple graphs can be produced and
put into a single graphic file—with the capabil-
Figure 23 The Overlay of the Density Plot
for Health and Beauty Sales (Dashed Line)
and Bakery Sales (Solid Line)
©
2005 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research
349
ity of overlaying one plot on the other. This is
particularly useful for summarising a number
of plots on one page. Figure 22 is an example
of how the distribution plots of the sales type
listed in Figure 16 can be summarised in a se-
ries of kernel density plots. It is possible to re-
quest the estimated density be placed in a file
that can be exported to another file so that den-
sities can be compared on the same plot. In Fig-
ure 23 we have rescaled the density plots for
both Health and Beauty Sales and Bakery Sales
so that they can be compared directly. Note that
the area under each density curve is scaled so
that it is equal to unity.
9. Conclusion
The message to be drawn from this article is
that graphic representation of data can help to
improve the understanding of the observational
information used in statistical analysis. There
are a number of methods for summarising data
in a visual way. These methods can be used on
individual series of values or on paired data or
with multiple series. The distributional as-
sumptions of the data can be examined and the
interrelationships between two variables and
multiple variables can be made. In addition, we
have demonstrated how a standard software-
generated graphic image can be improved to
enhance the message in the graphic informa-
tion of the data.
The emphasis in this article is on cross-
section observations in that we have not dis-
cussed the time-series aspects of the data. Im-
plicitly we have assumed that the data under
examination are identically and independently
distributed. The second assumption is often
not the case when a sample is measured over
time. Unfortunately, when a sample is not in-
dependent the use of correlation methods with
other dependent data may result in spurious re-
sults. In addition, if the data are not identically
distributed, the estimation of the density func-
tion may be confounded by the fact that the
data may be generated by multiple processes
and thus trying to identify a single process
may be akin to the use of data from a dumb-
bell plot case to estimate a correlation coeffi-
cient. Graphical methods can be used with
350 The Australian Economic Review
time-series data to identify the nature of the
data. This will be the topic of a future paper.
November 2004
Endnotes
1. Note that this article assumes the knowledge
from a first year introductory statistics subject.
2. Cross-section data are data on one or more
variables collected at the same point in time,
such as survey data. Although the methods de-
scribed here can be applied to data over time
(time series), time-series data require special-
ised methods which are not discussed in this ar-
ticle.
3. The Dominick’s database covers store-level
scanner data collected at Dominick’s Finer
Foods over a period of more than seven years.
The data are the property of the Marketing
group at the University of Chicago Graduate
School of Business and are intended for aca-
demic use only. For more detail on any other
parts of this dataset consult the web site at
<http://gsbwww.uchicago.edu/research/mkt/
Databases/DFF/DFF.html>.
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