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CH14A
CH14A
.. SLIDES . BY
.. John Loucks
.
.. St. Edward’s
.. University
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1
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Chapter 14, Part A
Simple Linear Regression
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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2
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Simple Linear Regression
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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3
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Simple Linear Regression
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4
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Simple Linear Regression Model
y = b0 + b1x +e
where:
b0 and b1 are called parameters of the model,
e is a random variable called the error term.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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5
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Simple Linear Regression Equation
E(y) = 0 + 1x
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Simple Linear Regression Equation
E(y)
Regression line
Intercept Slope b1
b0
is positive
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Simple Linear Regression Equation
E(y)
Intercept
b0 Regression line
Slope b1
is negative
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8
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Simple Linear Regression Equation
No Relationship
E(y)
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9
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Estimated Simple Linear Regression Equation
ŷ b0 b1 x
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Estimation Process
Estimated
b0 and b1 Regression Equation
provide estimates of ŷ b0 b1 x
b0 and b1 Sample Statistics
b0, b1
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11
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Least Squares Method
min (y i y i ) 2
where:
yi = observed value of the dependent variable
for the ith observation
y^i = estimated value of the dependent variable
for the ith observation
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Least Squares Method
b1 ( x x )( y y )
i i
(x x ) i
2
where:
xi = value of independent variable for ith
observation
yi = value of dependent variable for ith
_ observation
x = mean value for independent variable
_
y = mean value for dependent variable
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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13
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Least Squares Method
b0 y b1 x
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Slide
14
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Simple Linear Regression
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Simple Linear Regression
Number of Number of
TV Ads (x) Cars Sold (y)
1 14
3 24
2 18
1 17
3 27
Sx = 10 Sy = 100
x2 y 20
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Estimated Regression Equation
b1 ( xi x )( yi y ) 20
5
( xi x ) 2
4
y-Intercept for the Estimated Regression Equation
b0 y b1 x 20 5(2) 10
Estimated Regression Equation
yˆ 10 5x
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17
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Coefficient of Determination
i
( y y ) 2
i
( ˆ
y y ) 2
i i
( y ˆ
y )2
where:
SST = total sum of squares
SSR = sum of squares due to regression
SSE = sum of squares due to error
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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Coefficient of Determination
r2 = SSR/SST
where:
SSR = sum of squares due to regression
SST = total sum of squares
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Coefficient of Determination
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Sample Correlation Coefficient
where:
b1 = the slope of the estimated regression
equation yˆ b0 b1 x
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Sample Correlation Coefficient
rxy (sign of b1 ) r 2
yˆ 10 is
The sign of b1 in the equation 5 x“+”.
rxy = + .8772
rxy = +.9366
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Assumptions About the Error Term e
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Testing for Significance
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Testing for Significance
An Estimate of s 2
The mean square error (MSE) provides the estimate
of s 2, and the notation s2 is also used.
s 2 = MSE = SSE/(n - 2)
where:
SSE ( yi yˆ i ) 2 ( yi b0 b1 xi ) 2
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Testing for Significance
An Estimate of s
• To estimate s we take the square root of s 2.
• The resulting s is called the standard error of
the estimate.
SSE
s MSE
n2
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Testing for Significance: t Test
Hypotheses
H0 : 1 0
H a : 1 0
Test Statistic
b1 s
t where sb1
sb1 ( xi x ) 2
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Testing for Significance: t Test
Rejection Rule
where:
t is based on a t distribution
with n - 2 degrees of freedom
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Testing for Significance: t Test
b1
3. Select the test statistic. t
sb1
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Testing for Significance: t Test
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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Confidence Interval for 1
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Confidence Interval for 1
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Confidence Interval for 1
Rejection Rule
Reject H0 if 0 is not included in
the confidence interval for 1.
95% Confidence Interval for 1
b1 t / 2 sb1 = 5 +/- 3.182(1.08) = 5 +/- 3.44
or 1.56 to 8.44
Conclusion
0 is not included in the confidence interval.
Reject H0
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Testing for Significance: F Test
Hypotheses
H0 : 1 0
H a : 1 0
Test Statistic
F = MSR/MSE
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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Testing for Significance: F Test
Rejection Rule
Reject H0 if
p-value < a
or F > F
where:
F is based on an F distribution with
1 degree of freedom in the numerator and
n - 2 degrees of freedom in the denominator
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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Testing for Significance: F Test
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Testing for Significance: F Test
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied
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Some Cautions about the
Interpretation of Significance Tests
Rejecting H0: b1 = 0 and concluding that the
relationship between x and y is significant does
not enable us to conclude that a cause-and-effect
relationship is present between x and y.
Just because we are able to reject H0: b1 = 0 and
demonstrate statistical significance does not enable
us to conclude that there is a linear relationship
between x and y.
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End of Chapter 14, Part A
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