Quantitative Methods (M) Semester 1, 2017

Major Project

Project Instructions

 The project is separated into 3 interrelated tasks. All 3 tasks are due at the same time in report format.
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The final due date is Friday 2 of June at midday sharp. Please submit your assignments into the
relevant drop-box on the ground floor at Nexus 10. The drop-box will be labelled and available for
several days prior to the deadline. If your assignment is late, please submit to George personally – Do
not place it in the drop-box after the due date and time as it will not be received by the markers.

 Tasks 1, 2 and 3 most closely relate to Topics 2, 8 and 9 as detailed in the course outline.

 This is a group assignment. Students are encouraged to collaborate while completing it, however in
groups of no more than 3. If you’d like to form a group of 4, split into two groups of 2. While it is not
advised, you are also permitted to complete the project individually. Students wishing to complete the
project individually are expected to complete all tasks/questions.

 The project comprises 15% of your final Quantitative Methods (M) grade with the following assessment
breakdown:

 Task 1 20%
 Task 2 50%
 Task 3 20%
 Presentation 10%

 Your final report is required to be succinct, professional, detailed and fluent.

 Succinct: 8 page maximum length (including all tables, computer output and appendices)
 Professional: Present a well formatted document with no grammatical or spelling errors
 Detailed: Do not assume the statistical knowledge of the reader. Explain all advanced
concepts and include edited Excel/eViews output (i.e. do not include raw data)
 Fluent: Consider the overall document structure (i.e. introduction, conclusion and
bridge discussion linking the 3 tasks)

 In general, textbook-style summaries of concepts will attract few marks. So if you need to explain
concepts please use original language demonstrating your own personal understanding (and that of
your fellow group members).

 Focus your concluding discussion on the context in which the case study is set. Notice that each of
the 3 tasks is either asking you to (1) answer John or (2) explain what you did and how you did it to
arrive at your answers for John. You may even want to go the extra mile for him by doing additional
things which he hasn’t asked for (i.e. such as commenting on the broader conditions of the real estate
market outside of Loxton …).
Loxton is a small town with two suburbs. The data file “Major Project – Data Set” contains data on 550 houses
sold in Loxton between 2011 and 2016. This data includes the price at which the house was sold, which of two
agents sold the house (all houses are sold through an agent by law), the year in which the house was sold as well
as data on various characteristics of each house sold (age, size, number of stories etc.). These characteristics
serve as possible explanatory variables of sale price.

Data definitions follow:

OBS = observation
AGE = age of house in years
SHOPS = 1 if house is close to shopping precinct, 0 otherwise
CRIME = crime rate of the suburb within which the house is located
TOWN = distance in kilometres to the town centre
STORIES = number of dwelling stories
OCEAN = 1 if house has an ocean view, 0 otherwise
POOL = 1 if house has a pool, 0 otherwise
PRICE = price at which the house was sold (in dollars)
SELLER = selling agent – “W&M” (0) or “A&B” (1)
SIZE = size of the house in square metres
SUBURB = Mayfair (0) or Claygate (1)
TENNIS = 1 if house has a tennis court, 0 otherwise
SOLD = year of last sale (2011 to 2016)

Your tasks

Task 1 – 20% of project grade

You are required to provide a comprehensive summary of the data set contained in the “Major Project – Data
Set” file. How you choose to do this is entirely at your discretion. However, it is recommended that you
consider using both summary statistic and graphical methods while also noting any peculiarities within the data
set.

Task 2 – 50% of project grade

You have been hired by John, the wealthy owner of a house on Elm Street in Loxton (not included in the data
set) to predict the price at which his house will sell. His house has two stories, is in Claygate, is 210 square
metres large, is not near a shopping precinct and is 10 km from the town centre. He estimates that the house is
about 12 years old and in a high crime area according to his experiences. John inherited the house from his aunt
and is therefore unsure when it was last sold. Some other features of the property can be seen below:

Views of and from the house whose sale price you are to predict

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You are expected to build a regression model of house prices. In doing so, make sure that you use an
appropriate number of predictors to develop your estimates. Once you have constructed an appropriate model,
use it to obtain and provide for John’s house:

1. A point prediction of the sales price which it can be expected to fetch

2. A 95% interval prediction for this sale price
3. An estimate of the marginal effect of house size on this sale price
4. Financial advice on whether John should use “W&M” or “A&B” to sell his house. “W&M” charges a
commission of 5% whereas “A&B” charges a commission of 10% of the final sale price.

John, who claims to have some knowledge of regression analysis, has stressed that he thinks you should use a
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regression model with an R of at least 70%.

Note: Task 1 directed you to take note of any peculiarities in the data set. There are other additional errors in the
data set that you may not have picked up on in Task 1. These will only become clear to you once you start
working on Task 2. Several problems can result if you fail to handle these issues correctly, so be mindful to
address them, both in your regression application as well as your final report. If resolving any of the errors in
the dataset requires you to make assumptions, make sure to clearly state your reasoning and approach in your
report.

Task 3 – 20% of project grade

Please provide a reflective discussion of how you executed Task 2 of the project above. Specifically consider
the following:

1. Verify that your regression model does not suffer from any misspecification errors.
2. If you found that your model is in fact partially misspecified in (1) above, explain what you did to ensure
that the misspecification only has a minimal impact on your results in Task 2 above.
3. Were there any other oddities in the data set or your model? Explain.
4. Is there anything else worth mentioning which is relevant to your work or to your results?