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Chapter 7: Regression

17-2

Meaning

Regression is the measure of average relationship between two or more variables in terms of the original units of the data. Regression analysis is a statistical tool to study the nature and extent of functional relationship between two or more variables.

Then find out the average relationship between the two . . To estimate the unknown values of dependent variables from the known values of independent variables.17-3 Steps If Correlation is established among given variables .

17-4 Regression Equation:Equation:A mathematical Equation that allow us to predict the value of one variable from known values of one or more other variables. Dependent Variables- Independent Variables.(explanatory variables. response or outcome variable (y))-The variables whose value is predicted on the basis of another one. (explained variables. . predictor or input variable (x))-The variables which are used to predict the value of a dependent variable.

¶independent variable·.¶dependent variable· advertising expenditure is.17-5 s Example:When sales are predicted on the basis of advertising expenditure . . sale is.

supply curves. Regression analysis is used in statistical estimation of demand curves. cost function and consumption function.17-6 Uses In all fields Regression analysis predicts the value of dependent variables from the value of independent variables. . used to calculate r² and r . production function.

17-7 Types of regression o Simple Linear Regression o Multiple Regression o Nonlinear Regression Simple linear regression aims to find a linear relationship between a response variable and a possible predictor variable by the method of least squares. .

Simple linear regression estimates relationships of the form y = a + bx. While the terminology is such that we say that X "predicts" Y. we cannot say that X "causes" Y. .17-8 Regression Simple linear regression analysis estimates the relationship between two variables.

17-9 Regression line of X on Y and Y on X D E P E N D E N t V A R I A B L e X on Y Y on X Independent variable .

17-10 The names of the variables on the X and Y axis vary according to the field of application. The analysis is always described as the regression of the response on the carrier Y = a + bX X-axis Y-axis independent dependent predictor predicted carrier response input output .

17-11 The Regression Equation A linear regression equation is usually written Y = a + bX where Y is the dependent variable a is the constant (intercept) b is the regression coefficient (slope) X is the independent variable (or covariate) *here we are interested in finding the values of a and b. .

17-12 The most commonly used technique for fitting a straight line to a scatter diagram is the leastsquares procedure. the least-squares procedure minimizes the sum of squared errors or The line of best fit is the one which minimizes the sum of the squares of the vertical distances from the observed points to the line. In fitting the line. .

17-13 Regression equation : Regression equation of X on Y: Xe = a + bY where Xe : dependent variable Y : independent variable a & b : constants to be estimated ´It measures the amount of change in X corresponding to unit change in Yµ .

17-14 Regression equation of Y on X: Ye = a + bX where Ye : dependent variable X: independent variable a & b : constants to be estimated ´It measures the amount of change in Y corresponding to unit change in Xµ .

17-15 Method1:Calculating regression equation by solving two normal equations:equations:Regression equation of X on Y X=a+ bY To determine values of a and b we will solve two normal equations: X=Na+ b Y (1) XY=a Y+b Y² (2) Regression equation of Y on X Y=a+ bX To determine values of a and b we will solve two normal equations: Y=Na+ b X (1) XY=a X+b X² (2) .

¯Y) where : X and ¯Y : mean of X and Y bxy = regression coefficient of X on Y / y² x = (X .¯X) and y = (Y .17-16 Method2:Method2:-Deviation taken from mean of X and Y: Regression equation of X on Y: X .¯Y) = xy .X ¯ = bxy (Y .

¯X) where : ¯X and ¯Y : mean of X and Y byx = regression coefficient of Y on X = xy / x² Where x = (X .17-17 Deviation taken from mean of Y on X: Regression equation of Y on X: Y .¯Y) .¯Y = byx (X .¯X) and y = (Y .

X ¯ = bxy (Y .dx dy ) /(N dx² .(dy)² ) Where dx=X-A and dy =Y-B Regression equation of Y on X: Y .dx dy ) /(N dy² .¯X) where : ¯X and ¯Y : mean of X and Y byx = regression coefficient of Y on X = (Ndxdy .(dx)² ) Where dx=X-A and dy =Y-B *you can also use notations as U=dx and V=dy .¯Y) where : ¯X and ¯Y : mean of X and Y bxy = regression coefficient of X on Y = (Ndxdy .17-18 Method2:Method2:-Deviation taken from assumed mean of X and Y: Regression equation of X on Y: X .¯Y = byx (X .

¯Y = byx (X .¯X) where : ¯X and ¯Y : mean of X and Y byx = regression coefficient of Y on X =r( y/ x) .17-19 Method2:Method2:-Deviation taken from mean of X and Y: Regression equation of on Y: X .X ¯ = bxy (Y .¯Y) where : ¯X and ¯Y : mean of X and Y bxy = regression coefficient of X on Y =r( x/ y) Regression equation of Y on X: Y .

17-20 Case 1: The following data (in Rs Crores) Crores) gives expenditure on advertisement and sales of a firm: Advertisement Expenditure (x) Sales (y) 90 12 Mean S.D 10 3 Correlation Coefficient =0.8 .

(fdx)² ) h *notations can be used in different manner also By taking U=dx and V=dy .The modified formulae are: bxy = (Nfdxdy .fdx fdy )h /( fdy² .fdx fdy ) k /( fdx² .(fdy)² ) k byx = (Nfdxdy .17-21 Regression equation in a bi-variate grouped frequency: biy The procedure is same as of deviation method.

The coefficient of correlation is the geometric mean of two regression coefficients.(b·coz rcannot be greater than 1) Both regression coefficient will always have same sign. then bxy will also be negative and so that r. r² = byx * bxy (byx + bxy )/2 r If one of the regression coefficient is greater than unity. The estimated b is usually referred to as the regression coefficient. the other must be less than unity. If byx is negative . Regression coefficients are independent of change of origin but not scale.17-22 Statistics Associated with Bivariate Regression Analysis Regression coefficient. then bxy will also be positive and so that r.i. If byx is positive . .e.

what should be the minimum test score.The following data gives the test score and sales by 9 salesman during a certain period: Test scores: 14 19 24 21 26 22 15 20 19 Sales(·00Rs): 31 36 48 37 50 45 33 41 39 Calculate the coefficient of correlation between the test scores and the sales.what is the probable sales volume of salesman making a score of 28. .17-23 Case2:Case2:A departmental store gives in service training to its salesman which is followed by a test .3000.The management is considering whether it should terminate the service of any salesman who does not do well in the test . Does it indicate that the termination of service of low test scores is justified ?If the firm wants a minimum sales volume of Rs.

17-24 Case3: The following table give age of car of a certain make and annual maintenance costs. Ans:Rs.3750 . hundred) Also estimate the annual maintenance cost for ten year old car. Obtain the regression equation for cost related to age: Age of car(in years):24 6 8 Maintenance cost :10 20 25 30 (in Rs.

.38.17-25 Case4: For some bivariate data following results were obtained: Mean value of variable X=53.What should be the most likely value of X when Y=50.5.2 and of Y=39. of X on Y=-0.5 and regression coeff.Also find the value of r.Regression coefficient of Y on X=-1.

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