Simple linear regression

(Least Square Estimation and Interpretation)

MMA1402 - Regression and Time Series Modeling

Nanang Susyanto
Department of Mathematics, UGM
Introduction

overhead = )! + )" ×size + / Method

• Minimizing SSE
How do we choose #! and #" ? • Maximum Likelihood Estimation (MLE)
Key: choose s.t. #! + #" ×size as close as
possible to overhead
Least Squares Estimates

Write !! = overhead of of+ice ., 0 = size of of+ice ..

!! = 4 + 60! + 7!

• Sum of Squared Errors

• least squares estimates
LSE Derivation

Sum of Squared Errors

,
-
001 )! , )" = 3 4* − )! − )" 6*
*+"
Terminologies

• Intercept
• Slope
• Error
• Fitted line
• Fitted value
• Fitted residual
Interpretation of slope parameter
Interpretation of intercept parameter
R-squared

interpreted as the proportion of the total variation in the response

that is explained by the variates in the model. Why?
Looking Ahead

• normal model
• confidence interval
• hypothesis test