Class 4 Multiple Regression
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Transcript of Class 4 Multiple Regression
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Multiple RegressionMultiple Regression
Dr. Rohit Vishal KumarDr. Rohit Vishal KumarReader, Department of MarketingReader, Department of MarketingXavier Institute of Social ServiceXavier Institute of Social Service
PO Box No 7, Purulia RoadPO Box No 7, Purulia RoadRanchi – 834001, Jharkhand, IndiaRanchi – 834001, Jharkhand, India
Email: Email: [email protected]@gmail.com
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Types of Regression ModelsTypes of Regression Models
RegressionModels
LinearNon-
Linear
2+ ExplanatoryVariables
Simple
Non-Linear
Multiple
Linear
1 ExplanatoryVariable
RegressionModels
LinearNon-
Linear
2+ ExplanatoryVariables
Simple
Non-Linear
Multiple
Linear
1 ExplanatoryVariable
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Regression Modeling Steps Regression Modeling Steps
1. Specify the model and estimate all unknown parameters
2. Evaluate Model
3. Use Model for Prediction & Estimation
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• Decide on the dependent variableDecide on the dependent variable
• List all potential Independent List all potential Independent variablesvariables
Model SpecificationModel Specification
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Linear Multiple Regression ModelLinear Multiple Regression Model1.Relationship between 1 dependent
& 2 or more independent variables is a linear function
Y X X Xi i i k ki i 0 1 1 2 2 Y X X Xi i i k ki i 0 1 1 2 2
Dependent Dependent (response) (response) variablevariable
Independent Independent (explanatory) (explanatory) variablesvariables
Population Population slopesslopes
Population Population Y-interceptY-intercept
Random Random errorerror
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Linear Regression AssumptionsLinear Regression Assumptions• Mean of Distribution of Error Is 0
• Distribution of Error Has Constant Variance
• Distribution of Error is Normal
• Errors Are Independent
Extremely
ImportantExtremely
Important
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Parameter EstimationParameter Estimation
• Step 1:– Gather Data for all the Independent
and Dependent Variables
• Step 2:– Estimate the Parameters using the
Least Square Method
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Estimating the ParameterEstimating the Parameter
• Do it manually:– Requires knowledge of Matrix
Manipulation of Huge Sizes– B = (X’X)-1X’Y
• Use a Software– MS Excel Can handle 15 independent
Variables– No Limit on Statistical Software
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Interpretation of Estimated CoefficientsInterpretation of Estimated Coefficients
1. Slope (k)
– Estimated average change in Y by k for 1 Unit Increase in Xk Holding All Other Variables Constant
– Example:•If 1 = 0.13, then Y is expected to
Increase by 0.13 for Each 1 unit increase in X1 Given X2 X3 X4… Xn are held constant
^̂
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Interpretation of Estimated CoefficientsInterpretation of Estimated Coefficients
• 2. Constant (B0)– The value of Y when all other Variables
are = 0
– Also Know As the “Autonomous Value” of Y
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Evaluating Multiple Regression ModelsEvaluating Multiple Regression Models
• Examine Variation Measures
• Test Significance of Overall Model, portions of overall model and Individual Coefficients
• Other Things that needs to be Checked:– Check conditions of a multiple linear regression model
using Residuals– Assess Multi-co linearity among independent variables
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Variation Measures 1Variation Measures 1• Coefficient of Multiple Determination
• Proportion of Variation in Y ‘Explained’ by All X Variables Taken Together
yyyy
yy
SSSSE
SS
SSESSR
1
variationTotal variationExplained2
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• Adjusted R2
• R2 Never Decreases When New X Variable Is Added to Model (Disadvantage When Comparing Models)
• Solution: Adjusted R2
– Each additional variable reduces adjusted R2, unless SSE goes up enough to compensate
22 1
11
1 RSSyySSE
SSSSE
knn
Ryy
a
Variation Measures 2Variation Measures 2
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Testing Overall SignificanceTesting Overall Significance1. Tests if there is a Linear Relationship Between All X
Variables Together & Y
2. Hypotheses– H0: 1 = 2 = ... = k = 0
• No Linear Relationship
– Ha: At Least One Coefficient Is Not 0 • At Least One X Variable linearly Affects Y
3. Uses F test statistic
0
2
2
, 1
( ) //( ) /
/( 1) / 1 1 / 1
~
yy
H
k n k
SS SSE kSSR k R kF
SSE n k SSE n k R n k
F