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Chap 11-1
Chapter Goals
After completing this chapter, you should be
able to:
Chapter Goals
(continued)
11.1 Introduction to
Regression Analysis
Types of Relationships
Linear relationships
Y
Curvilinear relationships
Y
X
Y
X
Y
Types of Relationships
(continued)
Strong relationships
Y
Weak relationships
Y
X
Y
X
Y
Types of Relationships
(continued)
No relationship
Y
X
Y
Population
Slope
Coefficient
Independent
Variable
Random
Error
term
Yi 0 1Xi i
Linear component
Random Error
component
Yi 0 1Xi i
Observed Value
of Y for Xi
Predicted Value
of Y for Xi
Slope = 1
Random Error
for this Xi value
Intercept = 0
Xi
Estimate of
the regression
Estimate of the
regression slope
intercept
a bX
Y
i
i
Value of X for
observation i
i 1
i 1
i 1
n xi yi ( xi )( yi )
n
n xi2 ( xi ) 2
i 1
i 1
a y bx
Square Feet
(X)
245
1400
312
1600
279
1700
308
1875
199
1100
219
1550
405
2350
324
2450
319
1425
255
1700
Excel Output
Regression Statistics
Multiple R
0.76211
R Square
0.58082
Adjusted R Square
0.52842
Standard Error
41.33032
Observations
ANOVA
10
df
SS
MS
F
11.0848
Regression
18934.9348
18934.9348
Residual
13665.5652
1708.1957
Total
32600.5000
Coefficients
Intercept
Square Feet
Standard Error
t Stat
P-value
Significance F
0.01039
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
Graphical Presentation
Intercept
= 98.248
Do not try to
extrapolate
beyond the range
of observed Xs
SST
SSR
Total Sum of
Squares
Regression Sum
of Squares
SST ( Yi Y )2
SSR ( Yi Y )2
SSE
Error Sum of
Squares
SSE ( Yi Yi )2
where:
Y
i = Predicted value of Y for the given Xi value
Measures of Variation
(continued)
Measures of Variation
(continued)
Y
Yi
SSE = (Yi - Yi )2
Xi
_
Y
SST SST
total sum of squares
2
note:
0 R 1
2
Excel Output
SSR 18934.9348
r
0.58082
SST 32600.5000
2
Regression Statistics
Multiple R
0.76211
R Square
0.58082
Adjusted R Square
0.52842
Standard Error
41.33032
Observations
ANOVA
10
df
SS
MS
F
11.0848
Regression
18934.9348
18934.9348
Residual
13665.5652
1708.1957
Total
32600.5000
Coefficients
Intercept
Square Feet
Standard Error
t Stat
P-value
Significance F
0.01039
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
S XX
r b
S XY / KK ( S XX SYY )
SYY
S YX
SSE
n2
(
Y
Y
)
i i
i1
Where
SSE = error sum of squares
n = sample size
n2
Excel Output
Regression Statistics
Multiple R
0.76211
R Square
0.58082
Adjusted R Square
0.52842
Standard Error
41.33032
Observations
ANOVA
S YX 41.33032
10
df
SS
MS
F
11.0848
Regression
18934.9348
18934.9348
Residual
13665.5652
1708.1957
Total
32600.5000
Coefficients
Intercept
Square Feet
Standard Error
t Stat
P-value
Significance F
0.01039
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
small s YX
large s YX
Residual Analysis
ei Yi Yi
Not Linear
residuals
residuals
Linear
x
Non-constant variance
residuals
residuals
Constant variance
residuals
residuals
residuals
Independent
X
SYX
Sb
SSX
SYX
(X
X)
where:
Sb
S YX
SSE
Excel Output
Regression Statistics
Multiple R
0.76211
R Square
0.58082
Adjusted R Square
0.52842
Standard Error
Observations
ANOVA
Sb 0.03297
41.33032
10
df
SS
MS
F
11.0848
Regression
18934.9348
18934.9348
Residual
13665.5652
1708.1957
Total
32600.5000
Coefficients
Intercept
Square Feet
Standard Error
t Stat
P-value
Significance F
0.01039
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
Test statistic
b 1
t
Sb
where:
d.f. n 2
Sb = standard
error of the slope
b = regression slope
coefficient
1 = hypothesized slope
Square Feet
(x)
245
1400
312
1600
279
1700
308
1875
199
1100
219
1550
405
2350
324
2450
319
1425
255
1700
H1: 1 0
Coefficients
Intercept
Square Feet
b
Standard Error
Sb
t Stat
P-value
98.24833
58.03348
1.69296
0.12892
0.10977
0.03297
3.32938
0.01039
b 1 0.10977 0
t
t
3.32938
Sb
0.03297
H1: 1 0
Coefficients
Intercept
Square Feet
d.f. = 10-2 = 8
/2=.025
Reject H0
/2=.025
Do not reject H0
-t/2
-2.3060
Reject H
0
t/2
2.3060 3.329
b
Standard Error
Sb
t Stat
P-value
98.24833
58.03348
1.69296
0.12892
0.10977
0.03297
3.32938
0.01039
Decision:
Reject H0
Conclusion:
There is sufficient evidence
that square footage affects
house price
P-value = 0.01039
H0: 1 = 0
H1: 1 0
Coefficients
Intercept
Square Feet
P-value
Standard Error
t Stat
P-value
98.24833
58.03348
1.69296
0.12892
0.10977
0.03297
3.32938
0.01039
F Test statistic:
where
MSR
F
MSE
MSR
SSR
k
MSE
SSE
n k 1
Excel Output
Regression Statistics
Multiple R
0.76211
R Square
0.58082
Adjusted R Square
0.52842
Standard Error
41.33032
Observations
ANOVA
MSR 18934.9348
F
11.0848
MSE 1708.1957
10
df
MS
F
11.0848
Regression
18934.9348
18934.9348
Residual
13665.5652
1708.1957
Total
32600.5000
Coefficients
Intercept
Square Feet
Standard Error
P-value for
the F-Test
t Stat
P-value
Significance F
0.01039
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
Test Statistic:
H 0 : 1 = 0
MSR
F
11.08
MSE
H 1 : 1 0
= .05
df1= 1
df2 = 8
Decision:
Reject H0 at = 0.05
Critical
Value:
F = 5.32
Conclusion:
= .05
Do not
reject H0
Reject H0
F.05 = 5.32
b1 t n2Sb1
d.f. = n - 2
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
(continued)
Coefficients
Intercept
Square Feet
Standard Error
t Stat
P-value
Lower 95%
Upper 95%
98.24833
58.03348
1.69296
0.12892
-35.57720
232.07386
0.10977
0.03297
3.32938
0.01039
0.03374
0.18580
Chapter Summary
Chapter Summary
(continued)