REGRESSION ANALYSIS

• According to M.M. Blair “Regression analysis is a mathematical measure of the average relationship
between two or more variables in terms of the original units of the data”.

• For instance, the yield of a crop depends on the rainfall, the cost or price of a product depends on the
production and advertising expenditure, the demand for a particular product depends on its price,
expenditure of a person depends on his income, and so on.

• The regression analysis confined to the study of only two variables at a time is termed as simple
regression.

• The regression analysis for studying more than two variables at a time is known as multiple regression.

• The variable whose value is influenced or is to be predicted is called dependent variable and the
variable which influences the values or is used for prediction, is called independent variable.

• In regression analysis independent variable is also known as regressor or predictor or explanator while
the dependent variable is also known as regressed or explained variable.
 LINEAR AND NON-LINEAR REGRESSION
• If the given bivariate data are plotted on a graph, the points so obtained on the scatter diagram will
more or less concentrate round a curve, called the ‘curve of regression’.
• The mathematical equation of the regression curve, usually called the regression equation, enables us
to study the average change in the value of the dependent variable for any given value of the
independent variable.
• If the regression curve is a straight line, we say that there is linear regression between the variables
under study.
• If the curve of regression is not a straight line, the regression is termed as curved or non-linear
regression.
• Line of regression of y on x is the line which gives the best estimate for the value of y for any specified
value of x.
• Similarly, line of regression of x on y is the line which gives the best estimate for the value of x for any
specified value of y.

COEFFICIENTS OF REGRESSION
CORRELATION ANALYSIS Vs. REGRESSION ANALYSIS

1. Correlation literally means the relationship between two or more variables which vary in sympathy

so that the movements in one tend to be accompanied by the corresponding movements in the

other(s). On the other hand, regression means stepping back or returning to the average value and is a

mathematical measure expressing the average relationship between the two variables.

2. Correlation coefficient ‘rxy’ between two variables x and y is a measure of the direction and degree of

the linear relationship between two variables which is mutual. It is symmetric, i.e., ryx = rxy and it is

immaterial which of x and y is dependent variable and which is independent variable.

Regression analysis aims at establishing the functional relationship between the two variables under

study and then using this relationship to predict or estimate the value of the dependent variable for

any given value of the independent variable. It also reflects upon the nature of the variable, i.e., which is

dependent variable and which is independent variable. Regression coefficients are not symmetric in x and y,

i.e., byx ≠ bxy.

3. Correlation need not imply cause and effect relationship between the variables under study.
However, regression analysis clearly indicates the cause and effect relationship between the
variables. The variable corresponding to cause is taken as independent variable and the variable
corresponding to effect is taken as dependent variable.

4. Correlation coefficient rxy is a relative measure of the linear relationship between x and y and is
independent of the units of measurement. It is a pure number lying between ± 1. On the other hand, the
regression coefficients, byx and bxy are absolute measures representing the change in the value of the
variable y(x), for a unit change in the value of the variable x(y). Once the functional form of regression
curve is known, by substituting the value of the dependent variable we can obtain the value of the
independent variable and this value will be in the units of measurement of the variable.
5. There may be non-sense correlation between two variables which is due to pure chance and has no

practical relevance, e.g., the correlation between the size of shoe and the intelligence of a group of

individuals. There is no such thing like non-sense regression.

6. Correlation analysis is confined only to the study of linear relationship between the variables and,

therefore, has limited applications. Regression analysis has much wider applications as it studies linear as

well as non-linear relationship between the variables.

TIME-SERIES ANALYSIS
 TIME-SERIES ANALYSIS
• A time series is an arrangement of statistical data in a chronological order, i.e., in accordance with its
time of occurrence. It reflects the dynamic pace of movements of a phenomenon over a period of
time.

• Example : the series relating to prices, production and consumption of various commodities; agricultural
and industrial production, national income and foreign exchange reserves ; investment, sales and
profits of business houses ; bank deposits and bank clearings, prices and dividends of shares in a
stock exchange market, etc., are all time series spread over a long period of time.

• These techniques can also be applied for the study of behaviour of any phenomenon collected
chronologically over a period of time in any discipline relating to natural and social sciences, though not
directly related to economics or business.

• According to Ya-lun Chou : “A time series may be defined as a collection of readings belonging to
different time periods, of some economic variable or composite of variables”.