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Session 1.4 Factor Analysis Notes

Factor analysis is a multivariate statistical technique used to reduce a large number of variables into a smaller number of underlying factors. It identifies patterns of correlations between observed variables and groups highly correlated variables together under fewer unobserved latent factors. The results of factor analysis include factor loadings showing the correlation between each variable and factor, eigenvalues indicating the amount of variance explained by each factor, and factor scores representing scores for each respondent on each factor.

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47 views23 pages

Session 1.4 Factor Analysis Notes

Factor analysis is a multivariate statistical technique used to reduce a large number of variables into a smaller number of underlying factors. It identifies patterns of correlations between observed variables and groups highly correlated variables together under fewer unobserved latent factors. The results of factor analysis include factor loadings showing the correlation between each variable and factor, eigenvalues indicating the amount of variance explained by each factor, and factor scores representing scores for each respondent on each factor.

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Arwin Siy Layson
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Essentials of

Research
Day 1

Dr Shweta
Pandey
What will you learn in this session
Uses of factor analysis

Conditions for factor analysis

Factor rotation

Interpretation of factors
Factor analysis

1. Multi-variate statistical technique

2. No distinction in dependent and independent variable

3. It allows researchers to investigate concepts that are not easily measured directly

by collapsing a large number of variables into a few interpretable underlying

factors.

3
Factor analysis

1. Data reduction method: Extraction of factors where factor is a linear


combination of variables.
2. Multiple observed variables have similar patterns of responses because they
are all associated with a latent (i.e. not directly measured) variable. For
example, people may respond similarly to questions about income,
education, and occupation, which are all associated with the latent variable
socioeconomic status

4
Conditions for Factor Analysis

• Continuous data: Interval (Likert)/ Ratio scale

• Standardization of scales:

(Actual score- mean score of the statement)/ Standard deviation of the statement

• Initial set of variables should be highly correlated


Principal Component Analysis
Factors are linear combinations of the variables which are supposed to be
highly correlated, the mathematical form of the same could be written as

• Principle component analysis chooses those values of W which ensure


that first factor explains the maximum portion of the variance
Conditions for Factor Analysis

• Barlett’s Test of Sphericity: A test statistic used to examine the


hypothesis that the variables are uncorrelated in the population.

• H0: Correlation matrix is insignificant (the population correlation


matrix is an identity matrix; each variable correlates perfectly with
itself (r = 1) but has no correlation with the other variables (r = 0))

• H1: Correlation matrix is significant


Statistics associated with factor analysis

• Kaiser-Meyer-Olkin (KMO) Measure : An index used to examine


the appropriateness of factor analysis.
• Compares magnitudes of observed correlation coefficients with
magnitudes of partial correlation coefficients.

• High values (between .5 and 1.0) indicate factor analysis is


appropriate.
• Values below .5 imply that factor analysis may not be appropriate.
Conducting factor analysis
Formulate the problem

Construct the correlation/ covariance matrix

Determine the method of factor analysis: orthogonal/oblique/varimax

Determine the number of factors

Rotate the factors: Varimax etc.

Interpret the factors

Using factor scores


Factor analysis in SPSS

Click on Analyze and


then select Dimension
reduction and then
factor
Factor analysis in SPSS

Select all variables and


then click on the arrow
pointing right
Factor analysis in SPSS
After clicking on the
arrow all variables will
show in the Variables
section

Next Click on
Descriptive tab and
select Univariate, Initial
solution and KMO and
Bartlett’s test
Factor analysis in SPSS

Next Click Extraction


and choose Principal
component and click
on Continue
Choose rotation method
Select ROTATION and
select the specific
method of rotation:
Varimax
Cleaning up the result
Select Options and
suppress small
coefficients. Fill value
Saving factor scores as variables
Select Scores and
click on save as
variables
Cleaning up the result
Select Options and
click on sorted by size
Factor loadings
Variable Factor 1 Factor 2

Factor loading of 0.793 is the


Easy accessibility 0.793 0.047
correlation between the
Maturity time 0.765 -0.198 variable Easy accessibility and
Component (Factor) 1 or factor
Returns 0.527 0.160
score 1
Tax rebate 0.309 0.125
Risk awareness -0.176 0.753
Insurance Cover 0.335 -0.707
Credibility 0.570 0.633
Eigen value 2.054 1.551 Eigen value of Factor
1= 0.793^2+
0.765^2+….+0.570^2

Factor= f( Items/ Variables)


Factor loadings: Correlation of each item/variable with the Factor score
Eigen values
Only factors with Eigen value of at least 1 are accepted

28.78%
variance is
explained by
Eigen factor 1
value>1
Communalities
• How much of the
item/variable is
explained by the
Factors

For example a
community of 0.598
shows that 59.8% of
the variable/item is
explained by the
factors
Rotation of factors

• To make the solution easy to interpret we do rotation of initial factor solution

• There are options for orthogonal rotation, varimax rotation, oblique rotation

• The total variance explained by all factors taken together remains the same

after rotation.

• The communality's also remain the same

• Factor loadings may change


Extraction of factors
• Factor= f( Items/ Variables)

• Factor loadings: Correlation of each item/variable with the factor

• Factor Scores: Is computed for each of the factors corresponding


to each respondent. Factor scores are statistically independent and
can be used as independent variables
Statistics associated with factor analysis

• Factor Matrix: Contains the factor loadings of all the variables on all the factors
extracted.

• Percentage of Variance: The percentage of the total variance attributed to each


factor.

• Communality: This is the proportion of variance explained by the common


factors. The amount of variance a variable shares with all the other variables
being considered.

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