Scribd
Upload
24 views15 pages

Topic 4

Uploaded by

sarahaonyango70
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
24 views15 pages

Topic 4

Uploaded by

sarahaonyango70
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 15

Topic 4

Multiple Linear Regression


Learning objectives
Distinguish between simple linear
regression and multiple linear regression
Understand the applications of multiple
linear regression.
Use the F-test
Calculate the Adjusted R-Squared
The Multiple Regression
Model

Examine the linear relationship between


1 dependent (Y) & 2 or more independent variables (Xi)

Multiple Regression Model with k Independent Variables:

Y-intercept Population slopes Random Error

Yi β 0  β1X1,i  β 2 X 2,i    β k X k -1,i  εi


Multiple Regression
Equation

The coefficients of the multiple regression model are


estimated using sample data

Multiple regression equation with k independent variables:


Estimated Estimated
(or predicted) Estimated slope coefficients
value of y intercept

ŷ i b 0  b1x1i  b 2 x 2i    b k x k,i
We will always use a computer to obtain the regression
slope coefficients and other regression summary
measures.
Example 1: Sales
Pie Price Advertising
Week Sales ($) ($100s) Multiple regression equation:
1 350 5.50 3.3
2 460 7.50 3.3
3 350 8.00 3.0
Salest = b0 + b1 (Price)t
4 430 8.00 4.5 + b2 (Advertising)t
5 350 6.80 3.0
6 380 7.50 4.0
+ et
7 430 4.50 3.0
8 470 6.40 3.7
9 450 7.00 3.5
10 490 5.00 4.0
11 340 7.20 3.5
12 300 7.90 3.2
13 440 5.90 4.0
14 450 5.00 3.5
15 300 7.00 2.7
Multiple Regression Output
Regression Statistics
Multiple R 0.72213
R Square 0.52148
Adjusted R Square 0.44172
Standard Error 47.46341
Observations 15
Sales 306.526 - 24.975(Pri ce)  74.131(Adv ertising)

ANOVA df SS MS F Significance F
Regression 2 29460.027 14730.013 6.53861 0.01201
Residual 12 27033.306 2252.776
Total 14 56493.333

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%


Intercept 306.52619 114.25389 2.68285 0.01993 57.58835 555.46404
Price -24.97509 10.83213 -2.30565 0.03979 -48.57626 -1.37392
Advertising 74.13096 25.96732 2.85478 0.01449 17.55303 130.70888
The formal F-test for slope
parameter βi

Null hypothesis H0: β1 = β2 = 0


Alternative hypothesis HA: β1 ≠ β2 ≠ 0

2
∗ 𝑅 /𝑘
Test statistic 𝐹 =
(1 − 𝑅2 )/ 𝑛 −𝑘 −1

F-critical (from F-tables)𝐹𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙=𝐹 𝑘, 𝑛− 𝑘− 1

Column Row
Formal F-test

Decision rule

 β1 and β2 are jointly significant

 β1 and β2 are jointly significant


Equivalence of F-test to t-test
For a given α level, the F-test of β1 = 0
versus β1 ≠ 0 is algebraically equivalent to
the two-tailed t-test.
Will get exactly same P-values, so…
If one test rejects H0, then so will the other.
If one test does not reject H0, then so will the
other.
Should I use the F-test or the
t-test?
The F-test is only appropriate for testing
that the slope differs from 0 (β1 ≠ 0).
Use the t-test to test that the slope is
positive (β1 > 0) or negative (β1 < 0).
F-test is more useful for multiple regression
model when we want to test that more than
one slope parameter is 0. Test if β1 and β2
are jointly significant
 The adjusted R-squared compares the
explanatory power of regression models that
contain different numbers of predictors
 It is adjusted based on the df (i.e. the number
of predictors in the model)
 Relevant in multiple regression
 Adjusted R2 can actually get smaller as
additional variables are added to the model.
 As N gets bigger, the difference between R2 and
Adjusted R gets smaller and smaller.
2
One main difference between and the
adjusted

 assumes that every single variable


explains the variation in the dependent
variable.

The adjusted tells you the percentage of


variation explained by only the
independent variables that actually affect
the dependent variable.
Class exercise
Given that R2 = 0.52, n=15, and k=2
Calculate the Adjusted R2
Test the statistical significance of R2
Use the t-test to test the statistical
significance of β1 and β2
Describe the equivalence of the F-test and
the t-test above.
Solution: Multiple Regression
Output
Regression Statistics
Multiple R 0.72213
R Square 0.52148
Adjusted R Square 0.44172
Standard Error 47.46341
Observations 15
Sales 306.526 - 24.975(Pri ce)  74.131(Adv ertising)

ANOVA df SS MS F Significance F
Regression 2 29460.027 14730.013 6.53861 0.01201
Residual 12 27033.306 2252.776
Total 14 56493.333

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%


Intercept 306.52619 114.25389 2.68285 0.01993 57.58835 555.46404
Price -24.97509 10.83213 -2.30565 0.03979 -48.57626 -1.37392
Advertising 74.13096 25.96732 2.85478 0.01449 17.55303 130.70888
Class test
You are given the following regression equation:

1. Interpret the coefficient of determination (2


marks)
2. Test the significance of the coefficient of
determination (6 marks)
3. Compute the adjusted and interpret your

You might also like