Regression202Tutorial 1 SpiderFinancialCorp,2013

Tutorial:Regression202
Thisisthefourthentryinourregressionanalysisandmodelingseries.Inthistutorial,wecontinuethe
analysisdiscussionwestartedearlierandleverageanadvancedtechniqueregressionstabilitytestto
helpusdetectdeficienciesintheselectedmodel,andthusthereliabilityoftheforecast.
Again,wewilluseasampledatasetgatheredfrom20differentsalespersons.Theregressionmodel
attemptstoexplainandpredictweeklysalesforeachsalesperson(dependentvariable)usingtwo
explanatoryvariables:intelligence(IQ)andextroversion.
DataPreparation
Similartowhatwedidinanearliertutorial,weorganizeoursampledatabyplacingthevalueofeach
variableinaseparatecolumnandeachobservationinaseparaterow.
Inthisexample,wehave20observationsandtwoindependent(explanatory)variables.Theresponseor
dependentvariableistheweeklysales.
Next,weintroducethemask.ThemaskisaBooleanarray(0or1),whichchooseswhichvariableis
included(orexcluded)fromtheanalysis.
Letsusetheresultsfromthe3
rd
entryinthistutorialseries,andsetthemaskentryforIntelligenceto
be0andtheextroversiontobe1.

Furthermore,letsexcludeobservation#16,asitprovedtobeinfluentialonourregressionmodel.

Regression202Tutorial 2 SpiderFinancialCorp,2013

Process
Toexaminethestabilityoftheregressionmodel,weneedtosplitthedatasetintotwononoverlapping
datasets:dataset1anddataset2.
Theregressionstabilitytestconstructs3differentregressionsmodels.
1. Model1:Usingobservationsindataset1:
1 1,1 1, 1, ,
...
i P p i
Y X X o | | = + + +
2. Model2:Usingobservationsindataset2:
2 2,1 1, 2, ,
...
i P p i
Y X X o | | = + + +
3. Model3:Usingobservationsindata1andindataset2:
3 3,1 1, 3, ,
...
i P p i
Y X X o | | = + + +
Askthefollowingquestion:

1 2
1, 2,
1
,
:
:
1 2
1
o
j j j
i
i j j
H
H
i
j p
o o o
| | |
o o
| |
= =

= =

- =

- =

s s
s s

InplainEnglish,isanyoftheregressioncoefficientsvalueineitherdatasetsignificantlydifferentfrom
thatintheotherdatasetorthecombineddataset?
Forourdemonstrationpurposes,wewillchoosethefirst10observationsasdataset1,andthe
remainingasdataset2(11to20).Drawalinetooutlinetheseparation.

Regression202Tutorial 3 SpiderFinancialCorp,2013

Nowwearereadytoconductourregressionstabilityanalysis.
- Selectanemptycellinyourworksheetwhereyouwishthetestoutputtobegenerated.
- LocateandclickontheStatisticalTesticon,selecttheregressionstability,andclickonthe
RegressioniconintheNumXLtab(ortoolbar).

- TheRegressionStabilityTestWizardappears.Selecttheinputcellsrangefordataset1anddata
set2.Specifytheinputmask:

- IntheOptionsandMissingValuestabs,acceptthedefaults.
- ClickOK.
- TheChowtesttableisgenerated.

Regression202Tutorial 4 SpiderFinancialCorp,2013

TheChowtestaccepts(ordoesnotreject)thenullhypothesisthatthevaluesofthecoefficientsare
statisticallyindifferentintheentiredataset.
Conclusion
Inthistutorial,weexploredthestabilityoftheregressionintheinputsampledata.
Basedonourfinding,themodelcanbeusedfordeliveringaforecastusingoneexplanatoryvariable(i.e.
extroversion).

Finally,wemaywonderwhetherwecanstillimprove(i.e.reducetheregressionerror)bycombiningthe
twoexplanatoryvariables(intelligenceandextroversion)?
Answer:Maybe,butthisisatopicforadifferentseriesspecificallyprincipalcomponentregression
(PCR).
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