Coursework and Project Cover Sheet

Department of Civil and Environmental Engineering

Cluster: Transport and business management

Module: Quantitative Methods

Assignment: Coursework

Assignment Setter: Daniel GRAHAM

Submission Deadline:19-NOV-2020

DECLARATION

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I certify that I have NOT:

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Signature: Name: Samuel GUIOSE

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test at any time and I will provide a further version of this work in an appropriate format when
requested:

CID: 01977602 Date: 19-NOV-2020

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Q1.

We are going to set a linear in parameters model. As we have only two variables, our model will
have only one explanatory variable. We are going to set the income as the explanatory variable, that
means the independent variable (x). Thus, we are going to explain car ownership, the dependent
variable (y) respect to income, as the more you earn the more you can afford to buy cars.

The model takes the form:

y i=α + βx i +ϵ i
Where
– α ∧β are the parameters∧ϵ i is the randomerror of the observation i
– yi is observation i onthe dependent variable y ( ¿ explain )
−x i is observationi on theindependent variable x
2
We assumeϵ i i. i. d N (0 , σ ϵ ), that describes Gauss Markov conditions which are key hypotheses
for the linear regression:

- E¿¿
- Cov (ϵ ¿ ¿ i, ϵ j )=0 ¿ : error term is uncorrelated with covariates.
2
- Var ( ϵ i )=σ for all i
- ϵ i is statistically independent of ϵ j for i≠ j

We estimate the parameters by least squares method:

We express the error as: ϵ i= y i −( α + β x i ) . The objective is to minimise the sum of squares of the
errors ϵ i.
n
The sum of squared errors is: Sϵ =∑ ( y i−(α + β xi ) )
2 2

i =1

2
By differentiating Sϵ with respect to the parameters α and β, then equating to zero, we obtain:

^ = y − ^β x
 α
2
^β= S xy = Cov ( x , y )
2
S xx Var (x )
n
where S 2xy =∑ (xi −x)( y i− y)
i=1

n
¿ S xx =∑ ( x i−x )
2 2

i=1

x and y are the means of the 2 samples.

  x=¿ 24541 dollars
y=¿1.625 cars/inhabitant

2
S xy =10758.1
2
S xx =801312056.5

We find

^β=1.343E-05 cars
/dollars α^ =1.296 cars/inhabitant
inhabitant
Those are the estimated values of the parameters.

We consider these estimators BLUE = Best Linear Unbiased Estimators. Therefore, they respect the
Gauss Markov conditions. The estimators are:

- Unbiased
- With variance as small as possible
- Convergent

Coefficient of determination:

S2m
r 2=
S2t
Where,
n
Sm =∑ ¿^
2
¿ ¿ ¿0.1444 , ¿)
i=1

n
S =∑ ( y i− y ) =¿¿ 0.7062
2 2
t
i =1

2
r =0.2045
Standard errors:

We obtain:

s
 s β=
S xx
2
S
Where s = ϵ is an estimate of the variance of the population error (n=17)
2
n−2
2 2 2
Sϵ =S t −S m=0.562
 s=
√ 0.562
15
=0.19

√
2
1 x
 sα =s +
n S2xx

s β=6.837E-06

sα =0.1742 Those are the estimated values of the standard errors of the parameters.

Q2.

Coefficient of determination:

We found r 2=0.2045. The coefficient of determination measures the proportion of the variation in
y (car ownership) explained by the systematic part of the model, x (income). That could mean that
20% of variation in car ownership is explained by the income.

Besides, by doing the linear regression on R, we can access the “adjusted coefficient of
determination”(Figure 2). It considers the number of variables used in the model, unlike the
“normal” coefficient of determination. According to R, adjusted r-squared is 0.1515 which is 15%.

So, that could mean that car ownership is associated with income at a 15% rate, which is low and
should warn us that the model is not performant. The closer to 0 is the coefficient of determination,
the less correlated are the variables. By observing the graph of the linear regression (Figure 1.) we
can say that the correlation between both variables is not satisfying as the points are scattered.
 Linear regression
2.50

2.00

f(x) = 1.34255884402106E-05 x + 1.29581912095734

R² = 0.204515464928242
1.50
Car ownership

1.00

0.50

0.00
15000 20000 25000 30000 35000 40000

Income ($)

Figure 1. Linear regression on Excel

 Figure 2. Linear model on R

We assess the power of the model. For that, we want to test the overall significance of the model by
utilizing 2 methods: the coefficient of determination and the F-test. Those are tests of calibration, to
see whether or not the model is appropriate for the data to which the model has been fitted.

 First, we test the significance of the coefficient of determination at level 0.05.

We test the null hypothesis:

H 0 :r=0
H1: r ≠ 0

Under the assumption that the error term is normally distributed with a mean of 0, the test statistic
t has Student’s distribution with (n-2) degrees of freedom:
 t r=r
√ n−2 S m
= =1.96
1−r 2 s

We have t n−2 , p =t 15,0.025 =2.131 .Then , t r <t 15,0.25 ∧we cannot reject H 0 at level 0.05 .
2

 We can conclude that the coefficient of determination of the model is not significantly
different from 0 at level 0.05.

 F-test:

We can also see the overall significance of the model by doing a test based on F-distribution, where:

H 0 : β=0
H1: β ≠ 0

This test is a form of analysis of variance (ANOVA) test. We obtain an F-distributed test statistic with
(k,n-(k+1)) degrees of freedom where k is the number of independent variables. Here k = 1 and n =
17.

S2m /k 0.1444
F= = =3.856 And,
2
S /(n−( k +1 ) )
ϵ
0.562/15

1 1
f 0.05,1,15=4.54∧f 0.95,1,15 = = =¿0.22
f 0.05,1,15 4.54

We have f 0.95,1,15 < F< f 0.05,1,15 so we accept H 0 .

 β is not significantly different from 0 at level 0.05.

Those two tests prevent us from accepting this model. As a result, we can’t accept the model as a
performant one.

Income does not affect car ownership; they are not associated. The model should be fitted again.

Q3.
Discussion of the performance of model

 We can first do some qualitative checks:

o Expected signs: the sign of β coherent is as the more you earn the more you can
afford to buy cars. So, we could say that the predictions are plausible.
 Inspection of residuals:
o Omission of explanatory variable

Let’s discuss the trueness of the Gauss Markov conditions:

- E¿¿ (Normality)
- Var ( ϵ i )=σ 2 for all i (homoscedasticity )
- Cov (ϵ ¿ ¿ i, ϵ j )=0 ¿ : error term is uncorrelated with covariates. (homogeneity-linearity)
- ϵ i is statistically independent of ϵ j for i≠ j (independence)

Figure 3. R-spread-location plot

This graph permits verifying if the variance of the errors is constant (homoscedasticity ). The red
line should be horizontal to prove the variance is constant and the values should be equally spread.
Here, the red line close from being horizontal. We cannot deny the model. Though, we can observe
an outlier that could “disturb” the model, value number 13 circled in red (Figure3).
 Figure 4. Residual vs Leverage

This plot stresses if some points influence linear regression. We don’t look for patterns but for
outlying values which are off the boundaries at the upper right corner and lower right corner. Here
we don’t see any values off the limits so we cannot deduct any influence on the regression results.

Figure 5. Residual vs Fitted

 This plot stress whether or not there is a linear relationship between the independent and
dependent variable by showing residuals patterns. (assumption of linearity and
independence of errors)
The red line should appear horizontal to show that there is a linear relationship between x
and y and the residuals should be equally spread around this horizontal. Here we cannot see
a clear pattern. We can observe a little shift between the fitted values 1.55 and 1.65 with the
residual number 13 (circled in red on figure 5.). We can accept this plot as a “good” one.

Figure 6. Normal Q-Q

This plot shows if the residuals are normally distributed. The points should follow the
straight line and note deviate. Here, the points more or less follow the straight line, that
2
means the assumption of ϵ i N (0 , σ ϵ ) is respected. We can observe 2 severe outliers which
could be removed to obtain a better model. Number 13 which is the same than in Figure 5.
And number 16.

On Figure 7, we can also assume that {E(ϵ} rsub {i)} =0 for all i is a respected condition.
The fact that this graph shows that the points follow a curvy trend could indicate the fact
that there is a relationship between x and y that we did not take into account.

Figure 7. Excel table

As the model meets the assumptions on the errors, we cannot totally deny it. It should be
fitted again as the form was not correct. We may have omitted other explanatory
variables.
 References :

[1] Data.library.virginia.edu. 2020. Understanding Diagnostic Plots For Linear Regression Analysis |

University Of Virginia Library Research Data Services + Sciences. [online] Available at:
<https://data.library.virginia.edu/diagnostic-plots/> [Accessed 19 November 2020].

[2] Decitre.fr. 2020. Le Modèle Linéaire Par L'exemple. Régression, Analyse De La Variance Et Plans
D'expérience Illustrés Avec R, SAS Et Splus - Jean-Marc Bardet,Jean-Marc Azaïs. [online] Available
at: <https://www.decitre.fr/livres/le-modele-lineaire-par-l-exemple-9782100495597.html>