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Regression Analysis

Regression analysis is a statistical technique used to determine the relationship between two or more variables. It can be used to establish economic theories by analyzing relationships between variables like supply and demand. Linear regression finds the best fit straight line relationship between a dependent and independent variable. The slope of the line is the regression coefficient, which can be used to make predictions and determine how much of the variation in the dependent variable is explained by the independent variable.

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Kumar Abhinav
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131 views14 pages

Regression Analysis

Regression analysis is a statistical technique used to determine the relationship between two or more variables. It can be used to establish economic theories by analyzing relationships between variables like supply and demand. Linear regression finds the best fit straight line relationship between a dependent and independent variable. The slope of the line is the regression coefficient, which can be used to make predictions and determine how much of the variation in the dependent variable is explained by the independent variable.

Uploaded by

Kumar Abhinav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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By: Kumar Abhinav

 Regression is the measure of the average relationship


between two or more variables in terms of the original
units of data.
 Regression analysis is a branch of statistical theory which is
widely used in all the scientific disciplines. It is a basic
technique for measuring or estimating the relationship
among economic variables that constitute the essence of
economic theory and economic life.
 Regression analysis is also used in establishing the theories
based on relationships of various parameters. Some of the
common examples are demand and supply, money supply
and expenditure, inflation and interest rates, promotion
expenditure and sales, productivity and profitability,
health of workers and absenteeism etc.
 This model is used if we have bivariate distribution
i.e. only two variables are considered and the best
fit curve is approximated to a straight line.
 The linear regression model uses straight line
relationship. Equation of a straight line of the
form,
Equation of X on Y is: X = a+bY
Where X = Dependent variables
and Y = Independent variables
Equation of Y on X is: Y = a+bX
Where X = Dependent variables
and Y = Independent variables
 Where a and b can be found by following equations:
1) ΣX = na + bΣY
ΣXY = aΣY + bΣY2

2) ΣY = na + bΣX
ΣXY = aΣX + bΣX2
A) Deviation from Arithmetic Mean Method:
Regression Equation of X on Y is
(X-X) = bxy(Y-Y)
Where bxy = Σxy/ Σx2
Regression Equation of Y on X is
(Y-Y) = byx(X-X)
Where byx = Σxy/ Σy2
bxy and byx are regression coefficient
B) It is a shortcut method
Regression Equation of X on Y is
(X-X) = bxy(Y-Y)
Regression Equation of Y on X is
(Y-Y) = byx(X-X)
Where bxy and byx are regression coefficient
bxy = NΣdxdy – ΣdxΣdy
2 2
N Σdy – (Σdy)
byx = NΣdxdy – ΣdxΣdy
2 2
N Σdx – (Σdx)
bxy = cov(X,Y) and byx = cov(X,Y)
σy2 σx2
From above we get
cov(X,Y) = bxy.σy2 = byx.σx2
Using correlation coefficient
r = cov(X,Y)
σxσy
Thus, we get
bxy = rσx/σy and byx = rσy/σx
r 2 = bxy.byx
r = ±√ bxy.byx
 Let Xc and Yc denote the estimated or
computed values of X and Y obtained from
regression equations. Then we know that the
sum of deviations of X’s and Y’s from their
regression line are zero. Which means
∑(Y – Yc) = 0 and ∑(X – Xc) = 0
 Variability is the measure of spread of
scatter of actual value around the computed
values. It is given by
Variability = (Y - Yc)2/n or (X - Xc)2/n
 The standard error of estimate is similar to standard
deviation. The standard error of estimate is the
measure of variation about the line of regression,
whereas the standard deviation measures the
variation about the arithmetic mean.
 Standard Error of Estimate X on Y
SXY = √∑(X - Xc)2/(n -2)
or SXY = √[∑X2- a∑X - b∑XY]/ (n -2)
or SXY = σx √(1-r2)
Standard Error of Estimate X on Y
SYX = √∑(Y - Yc)2/(n -2)
or SYX = √[∑Y2- a∑Y - b∑XY]/ (n -2)
or SYX = σY √(1-r2)
 Explained variation: It is the variation which
is explained by the variable X. It is given by
∑(Yc - Y)2

 Unexplained variation: It is the variation


which is unexplained by the variable X. It is
given by
∑(Y - Yc)2
Total Variation = ∑(Y - Y)2
= ∑[(Y - Yc) + (Yc - Y)]2
= ∑(Y – Yc)2 + ∑(Yc - Y)2 + 2∑(Y - Yc)(Yc - Y)
= ∑(Y – Yc)2 + ∑(Yc - Y)2
Being ∑(Yc – Y) = 0

Hence
Total Variation = Explained variation +
Unexplained variation
 The coefficient of determination is the
square of the coefficient of correlation i.e.
r2. It is denoted by β. The maximum value of
r2 is unity and in that case all the variation in
Y is explained by the variation in X. It is also
defined as
β = Explained Variance
Total Variance
Coefficient of Non-determination = 1- β
= 1 - r2
 Coefficientof alienation is square root of
coefficient of non-determination.

k = √(1 - r2)

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