Assignment

No.2
QTMS

JAMEEL AHMED (8513)

To: Sir Arsalan Hashmi
Question 1: The following regression results are based on a study of labour
turnover in the United States for the period 1950Q1 to 1979Q4.

Where
Y= quit rate in manufacturing, defined as the number of people leaving jobs voluntarily
per 100 employees.
X2= an instrumental or proxy variable for adult male unemployment rate
X3= percentage of employees younger than 25
X4= ratio of manufacturing employment in quarter (t-1) to that in quarter (t-4)
X5= percentage of women employees
X6= time trend (1950Q1=1)
(a) Interpret the regression coefficients and comment on their statistical
significance.
Interpretation of constant:
The estimated value of the intercept is 4.47. This means that when all the independent
variables are equal to 0. The number of people leaving job voluntary per 100 employees
will be 4.47.
(b) Is the negative relationship between the logs of Y and X2 justifiable? Explain
your answer.
Interpretation of slope coefficients:
For the coefficient of X2:
The estimated value of slope coefficient is -0.34. This value implies that unemployment
increases by 1% the Quit rate will decrease by -0.34%, holding other variables as
constant. This makes sense as the increase in the unemployment level will decrease
the no. of people leaving job voluntary.
For the coefficient of X3:
The estimated value of slope coefficient of X3 is 1.22. This value implies that if the
number of young employees increases by 1% the quit rate will increase by 1.22%,
holding other variable as constant. This makes sense because the young people tend to
look for new opportunities.
For the coefficient of X4:
The estimated value of slope coefficient of X4 is 1.22. This value implies that if the
manufacturing employment rate increases by 1% the quit rate will increase by 1.22%,
holding other factors constant. This makes sense if there is the boom in the economy
quit rate can be increased, so that people look for new opportunities. But if there is
recession the quit rate can decrease.
For the coefficient of X5:
The estimated value of the slope coefficient of X5 is 0.80. This value implies that if the
percentage of women employees will increase be 1% the quit rate will also increase by
0.80% holding other variables constant. It Makes sense.
For the coefficient of X6:
The estimated of the slope coefficient of X6 is -0.0055. This value implies that when the
time trend is increases the no. of the voluntary job quits decreases.
(c) Comment about the goodness of fit of the model.
Goodness of fit of model:
The model has the 0.5370 value of R squared. That means 53.70% variation of
dependent variable has been explained by the model. Model has a normal good fit.
(d) Estimate the standard errors of the regression coefficients.
For X2
T= -5.31 B2= -0.34
SeB2= -0.34/-5.31 = 0.064
For X3
T= 3.64 B3= 1.22
SeB3= 1.22/3.64 = 0.335
For X4
T= 3.10 B4= 1.22
SeB4= 1.22/3.10 = 0.393
For X5
T= 1.10 B5= 0.80
SeB5= 0.80/1.10 = 0.727
For X6
T= -3.09 B6= 0.005
SeB6= 0.005/-3.09 = -1.77x10^-3
(e) Estimate the value of r-squared and calculate the F-statistic. What can you
conclude about the overall significance of the model?
Adjusted R-Squared = 1-(1-R2) (n-1/n-k)
 0.5370= 1-(1-R2) (119/114)
0.5370= 1- (1-R2) (1.0438)
0.5370= 1- 1.0438 + 1.0438R2
0.5370 + 1.0438 -1 = 1.0438R2
0.5808/1.0438 = R2
R2= 0.5564
F- statistics= R2/(k-1) ÷ (1-R2)/(n-k)
= 0.5564/5 ÷ (1-0.5564)/(114)
= 0.11128/ (0.4436)/114
= 0.1128/ 0.0638
= 1.768
We accept the null hypothesis at 5% level of significance because the critical value is
2.29. It shows that this model is not overall significant.

Question 2: The data from 46 states of the United States was used to estimate the
following statistical results.

Where,
C= cigarette consumption, packs per year
P= real price per pack
Y= real disposable income per capita

(a) Interpret the regression results. Do they make logical sense?

Interpretation of coefficient:
For the coefficient of P:
The estimated value of the coefficient of P is -1.34. This means if the price per pack
increases by 1% the cigarette consumption will decrease by 1.34% holding other factors
constant. It makes logical sense as the price will increase, consumer will buy less.
For the coefficient of Y:
The estimated value of the coefficient is 0.17. This means if the income per capita will
increase by 1% consumption will also increase by 0.17% holding other factors constant.
It makes logical sense as the income will increase consumer’s buying power will also
increase and they will consume more.
(b) Are the regression coefficients statistically different from one?
T- Test For P (df= n-k = 46-3 =43, level of significance= 5%)
T = B2-B0/SeB2
= -1.34/0.32
= -4.1875
Critical value= + 2.021, -2.021
Hence -4.1875 lie in the Rejection region so it means they are statistically significant
at the 5% level of significance.
T- Test For Y (df= n-k = 46-3 =43, level of significance= 5%)
T = B3-B0/SeB3
= 0.17/0.20
= 0.85
Critical value= + 2.021, -2.021
Hence 0.85 lie in the Acceptance region so we ace[t the null hypothesis that means
they are not statistically significant at the 5% level of significance.
(c) Compute the value of r-squared and test the overall significance of the model.
Adjusted R-Squared = 1-(1-R2) (n-1/n-k)

0.27= 1- (1-R2) (46-1) (46-3)

0.27= 1- (1-R2) (1.046)

0.27= 1- 1.046 + 1.046R2

0.27= 0.046 + 1.046R2

0.27 - 0.046 = 1.046R2

0.224/1.046 = R2

R2= 0.2141

F- Statistics = R2/(k-1) ÷ (1-R2)/(n-k)

= 0.2141/2 ÷ 0.7859/43
= 0.10705/0.0182

=5.881

N= 2, D= 43, α= 5%

Critical value= 3.23

Hence the null hypothesis is rejected at 5% level of significance because the value
5.881 lie in the rejection region and it shows that the overall model is significant.

Question # 3 using a sample of 209 firms, a researcher obtained the following

regression results

(a) Interpret the regression coefficients taking into account any prior
expectations that you may have about the signs of the coefficients.
Interpretation Of X2
The estimated value of the coefficient is 0.280. This value implies that when annual firm
sales increases by 1 dollar, salary of CEO increases by 0.280 percent at 5% level of
significance while holding all other variables as constant.
Interpretation Of X3
The estimated value of the coefficient is 0.0174. This value implies that when return on
equity increase by 1 dollar than salary of CEO increases by 0.0174 percent at 5% level
of significance while holding all other variables as constant.
Interpretation Of X4
The estimated value of the coefficient is 0.00024. This value implies that when return on
firm’s stock increases by 1 dollar, salary of CEO increases by 0.00024 percent at 5%
level of significance while holding all other variables as constant.

(b) Are the regression coefficients statistically significant at the 5% level?

For testing the significance of regression coefficients, we will use t table approach
T values:
X1: 13.5
X2: 8
X3: 4.24
X4: 0.44
Degrees of Freedom: n-k OR 209-4= 205; level of significance= 5%

Value extracted from t table = 1.960

X1 lies in Rejection Region.
X2 lies in Rejection Region.
X3 lies in Rejection Region.
X4 lies in acceptance region.
(c) Test the overall significance of the model.
For testing overall significance, we will use F Statistics
F Statistics= R2/(k-1) / (1-R2)/(n-k)
R2= 0.283; k=4; n=209
f value= 0.0267
F value extracted using numerator and denominator from table is 2.65.
Hence, the f value lies in acceptance region.