Model 1: OLS, using observations 1-400

Dependent variable: Y

Coefficient Std. Error t-ratio p-value

const −3.82923 0.814906 −4.699 <0.0001 ***
X1 0.105311 0.165135 0.6377 0.5240
X2 0.299406 0.167576 1.787 0.0748 *
X3 0.0310847 0.0879179 0.3536 0.7239
X4 0.0365338 0.0908922 0.4019 0.6880
X5 0.113958 0.174424 0.6533 0.5139
X6 −0.0729491 0.182980 −0.3987 0.6904
X7 0.201744 0.184144 1.096 0.2740
X8 −0.217669 0.169767 −1.282 0.2006
X9 0.163946 0.151576 1.082 0.2801
X10 −0.0740151 0.114473 −0.6466 0.5183
X11 0.173946 0.115034 1.512 0.1313
X12 −0.0416271 0.131835 −0.3158 0.7524
X13 −0.00573540 0.0981817 −0.05842 0.9534
X14 0.0183238 0.0827661 0.2214 0.8249
X15 0.0860489 0.0821958 1.047 0.2958
X16 0.715157 0.152900 4.677 <0.0001 ***
X17 0.148759 0.151769 0.9802 0.3276
X18 −0.0838257 0.0851271 −0.9847 0.3254
X19 0.183630 0.225621 0.8139 0.4162
X20 0.189160 0.222577 0.8499 0.3959
X21 0.0925734 0.113598 0.8149 0.4156

Mean dependent var 5.022500 S.D. dependent var 2.587224

Sum squared resid 1427.148 S.E. of regression 1.943071
R-squared 0.465647 Adjusted R-squared 0.435961
F(21, 378) 15.68560 P-value(F) 1.31e-39
Log-likelihood −821.9692 Akaike criterion 1687.938
Schwarz criterion 1775.751 Hannan-Quinn 1722.713

Only 2 variables are significant and majority of the variables are insignificant so may be an indication
of violation of assumptions .

Mean Error 7.2498e-016 -average residual is negligible – assumption is satisfied

Test statistic: LM = 9.292966,

with p-value = P(Chi-square(21) > 9.292966) = 0.986715- 2 assumption satified

Test for null hypothesis of normal distribution:

Chi-square(2) = 0.911 with p-value 0.63420 – normality test 0.63 > alpha null hyptheis is not rejected
– assumption is satisfied
VIF(j) = 1/(1 - R(j)^2), where R(j) is the multiple correlation coefficient

between variable j and the other independent variables- 11 variables have VIF more than 5 , when
you have more number of dimensions we get into a problem of multi collinearity. This is the most
imp prob in predictive modelling. Most imp assumption.

Assumption is not satisfied. If there is a corelation btw the variables – if the regressor variables are
correlated.

Principle component analysis – solution for problem of multi collinearity. when you know all are
moving together use one of them for prediction. Correlation btw the components will be zero.