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Homoscedasticity
Heteroscedasticity
deleted from the model, then the researcher would not be able to interpret
anything from the model.
Heteroscedasticity is more common in cross sectional types of data than in
time series types of data. If the process of ordinary least squares (OLS) is
performed by taking into account heteroscedasticity explicitly, then it would
be difficult for the researcher to establish the process of the confidence
intervals and the tests of hypotheses. Due to the presence of
heteroscedasticity, the variance that is obtained by the researcher should be
of lesser value than the value of the variance of the best linear unbiased
estimator (BLUE). Therefore, the results obtained by the researcher through
significant tests would be inaccurate because of the presence of
heteroscedasticity.
Multicollinearity
Multicollinearity is a state of very high intercorrelations or inter-associations
among the independent variables. It is therefore a type of disturbance in the
data, and if present in the data the statistical inferences made about the data
may not be reliable.
There are certain reasons why multicollinearity occurs:
It is caused by an inaccurate use of dummy variables.
It is caused by the inclusion of a variable which is computed from other
variable.
Generally occurs when the variables are highly correlated to each other.
Goodness-Of-Fit
DEFINITION of 'Goodness-Of-Fit'
Used in statistics and statistical modelling to compare an anticipated frequency to
an actual frequency. Goodness-of-fit tests are often used in business decision
making. In order to calculate a chi-square goodness-of-fit, it is necessary to first
state the null hypothesis and the alternative hypothesis, choose a significance
level (such as = 0.5) and determine the critical value.
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Sum of Squares
DEFINITION of 'Sum of Squares'
A statistical technique used in regression analysis. The sum of squares is a
mathematical approach to determining the dispersion of data points. In a
regression analysis, the goal is to determine how well a data series can be fitted
to a function which might help to explain how the data series was generated. The
sum of squares is used as a mathematical way to find the function which best fits
(varies least) from the data.
In order to determine the sum of squares the distance between each data point
and the line of best fit is squared and then all of the squares are summed up. The
line of best fit will minimize this value.
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There are two methods of regression analysis which use the sum of squares: the
linear least squares method and the non-linear least squares method. Least
squares refers to the fact that the regression function minimizes the sum of the
squares of the variance from the actual data points. In this way, it is possible to
draw a function which statistically provides the best fit for the data. A regression
function can either be linear (a straight line) or non-linear (a curving line).
Least Squares
DEFINITION of 'Least Squares'
A statistical method used to determine a line of best fit by minimizing the sum of
squares created by a mathematical function. A "square" is determined by
squaring the distance between a data point and the regression line. The least
squares approach limits the distance between a function and the data points that
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SUM OF SQUARES
LEAST SQUARES METHOD
LINE OF BEST FIT
HEDONIC REGRESSION
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