MODULE 11

DATA ANALYSIS
MEASURES OF CENTRAL TENDENCY

Measures of
central
tendency

Mean Median Mode

MEASURES OF CENTRAL TENDENCY: MEAN
Mean

When interval and ratio scale data are

grouped into k classes/ categories
For interval and ratio scale data ∑*%&' +% "%
∑(%&' "% "! =
"! = )
)
"% = mid-point of the ith class
"% = value of the ith observation +% = Frequency of the ith class
N= total no. of observations n= total no. of observations
k= no. of classes
MEASURES OF CENTRAL TENDENCY: MEDIAN

Median
For ordinal, interval and ratio scale data
*
+
,-.
!"#$%& = ( + Xh
/

(= lower limit of the median class

0= Frequency of the median class
12= Cumulating frequency for the class immediately below the class containing the median
h= Size of the interval of the median class
N= Total number of observations
MEASURES OF CENTRAL TENDENCY: MODE
Mode

For nominal, ordinal, interval and ratio scale data

()(*
!"#$ = & + X h
+()(* )(,

&= lower limit of the modal class

-. , -+ = frequencies of the classes preceding and following the modal class respectively
-= Frequency of the modal class
h= Size of the class interval
MEASURES OF DISPERSION

Measures of
dispersion

Variance and Relative and

Coefficient of
Range standard absolute
variation
deviation frequencies
MEASURES OF DISPERSION: RANGE

¡ Range= Xmax- Xmin

Where, Xmax= maximum value of the variable
Xmin= minimum value of the variable
MEASURES OF DISPERSION:VARIANCE AND STANDARD DEVIATION

¡ Variance is defined as the mean squared deviation of a variable from its arithmetic
mean.
" ∑'
$%& ($ )*
"
! = for a population of size N.
+
¡ The positive square root of the variance is called standard deviation.

∑'
$%& ($ )*
"
s.d= !=
+

Here, ,- = the ith observation of the population

.= Population mean
 MEASURES OF DISPERSION:VARIANCE AND STANDARD DEVIATION
(CONTD.)
¡ In sample surveys, we often take a sample and not the entire population. The standard deviation
of the sample is given by,
∑% (
"#$ &" '&
)
s=
*'+
Here, ,- = the ith observation of the sample
( sample mean
,=
.= total no. of sampling units

∑% (
"#$ /" &" '&
)
¡ In case we have grouped data, s=
*'+
Where, ,- = mid-point of the ith class
0- = Frequency of the ith class
MEASURES OF DISPERSION: COEFFICIENT OF VARIATION

¡ Computed for a ratio scale measurement.

¡ The s.d. measures variability of a variable around the mean. The unit of s.d= unit of
mean. Measure of dispersion is considerably affected by the unit of measurement.
¡ This becomes a problem when we try to compare two populations’ dispersion.
¡ We then use a measure of relative dispersion called the coefficient of variation (c.v.)
which is independent of units of measurements. It is calculated as,
!
c.v.= #"
$100
Where, s= standard deviation of the sample
" mean of the sample
$=
 MEASURES OF DISPERSION: COEFFICIENT OF VARIATION (CONTD.)
TAKE AN EXAMPLE:
Example: Suppose we want to compare variability of two tests.
Scores in
Students Test A (out of 100) Test B (out of 50)
1 78 23
2 89 25
3 58 46
4 94 45
5 76 38
6 34 20
7 46 30
8 58 35
9 72 37
10 75 42
Mean 68 34.1
Standard Deviation 18.81 9.24
Coefficient of variation 27.67 27.11
MEASURES OF DISPERSION: RELATIVE AND ABSOLUTE FREQUENCY
¡ In case of variables measured in nominal scale, relative and absolute frequencies
could be calculated as measures of dispersion.
Example: 250 people were asked which show on Netflix was their favourite and
responses were recorded as follows:
Most preferred Relative Frequencies
Absolute Frequencies
shows on Netflix (Abs freq*100/ Total) Most preferred shows on Netflix
Crown 50 20 Crown
8
20
Brooklyn Nine-Nine 40 16 Brooklyn Nine-Nine
Schitt's Creek 60 24 32 Schitt's Creek
Money Heist 80 32
16
Money Heist
The Queen's Gambit 20 8
24 The Queen's Gambit
Total 250 100
CORRELATION
¡ Measures the degree
Types of
of association
between two or
correlation
more variables
Positive Negative Zero
correlation correlation correlation
Pearson correlation coefficient can take any value
from -1 to 1. If the value of the correlation coefficient
is +1 then there is perfect positive correlation and if
the value is -1 then there is perfect negative
correlation. If the value is 0 then there is no
correlation between the two variables.
CORRELATION COEFFICIENT FOR ORDINAL SCALE DATA

¡ In case of ordinal scale data, the measure of association between two variables is
obtained through Spearman’s rank order correlation coefficient.
Given by,
6 ∑ ()*
!" = 1 −
+(+* − 1)
Where, !" = Spearman’s rank order correlation coefficient
() = (.//0!0+10 .+ 2ℎ0 !4+5.+6 7/ 2ℎ0 .2ℎ !0897+(0+2
n= sample size
MEASURE OF CORRELATION FOR INTERVAL/ RATIO SCALE
¡ Pearson’s correlation coefficient given by:

%&'(), +) 6 1 − +)
∑4123()1 − ))(+ 6
!"# = =
-. -/
6 7 ∑4123(+1 − +)
∑4123()1 − )) 6 7

Where, !"# = %&!!89:;<&= %&8>><%<8=;

%&' ), + = ?&':!<:=%8 &> ) :=@ +=E[(X-E(X)) (Y-E(Y))] gives the joint variability of X and Y
-. = Y. @. &> )
-/ = Y. @. &> +
6 [8:= &> )
)=
+6 = [8:= &> +
= = Y:[\98 Y<]8
REGRESSION
¡ Drawbacks of the correlation coefficient is:
¡ applicable only when two variables are linear, thus when there is zero correlation
it simply says there is no linear relationship, but a non-linear one can exist.
¡ Direction of relationship is not given only magnitude of association
¡ Regression analysis is able to overcome these drawbacks by testing if there are
any significant association existing between a dependent variable and a set of
independent variable.
¡ Two objectives of regression:
¡ Establish a relationship between variables
¡ Predict/ forecast new observations
REGRESSION (CONTD.)

¡ In regression, we assume that a dependent variable Y is a function of one or more

independent variables Xi’s.

Y= f(X)

If Y and X are assumed to have a linear relationship, they can be expressed as,
!" =# + %& +'"
Where, # ()* % are parameters that are to be estimated.
#= intercept
%= slope/ coefficient
e= stochastic error term
SIMPLE LINEAR REGRESSION
ESTIMATING THE ALPHA AND BETA

Error square term= ∑ "#$ = ∑('# − ')# )2 You could now solve for (1) and
is to be minimized. (2) and get,
- #
')# = +* + ./
+* = '8 − .- /8
We could write this as,
- # )2
∑ "#$ = ∑('# − +* + ./ And
To minimize, 9
∑ ;2 <2 −;8 <8 =>?(;,<)
-
.= :
9 =
0 ∑ 123 ∑ ;2 $ −;
8 $ ?BC(;)
=0 ----(1) :
04
5
0 ∑ 123
6
07
=0. -----(2)
ASSUMPTIONS OF CLASSICAL LINEAR REGRESSION MODEL
Classical Linear Regression Model (CLRM): !" = # + ∑ &" ∗ (" + )"

¡ Linear in parameters: !" can be expressed as a linear function of ("

¡ Regression model is correctly specified (no specification error)
¡ Given the values of (" , the mean of error term=0 à E()" / (" )=0
¡ No serial correlation or autocorrelation à cov()" , ): )=0
¡ Homoskedasticity à Var()" )=; < (You can see this in a simple graph à the residuals (errors) will
not change with the values of the predictor variables, if you draw a scatter plot between the errors
and fitted values you will not see any pattern)
¡ Normality à )" ~ N(0, ; < )
¡ Explanatory variables are uncorrelated with error term à cov((" , )" )=0
¡ No perfect multicollinearity à (" =f((: )
ADDITIONAL DOCUMENTS

¡ A video on expected value and variance of discrete random variables:

https://www.youtube.com/watch?v=OvTEhNL96v0

¡ Assumptions of CLRM in a blog:

https://economictheoryblog.com/2015/04/01/ols_assumptions/