Chp4-lecture_notes_linear_regression

# Chp4-lecture_notes_linear_regression - Interpretation of...

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Module 4 - Simple Linear Regression Numerical Summaries for Two Quantitative Variables Objectives: Consider two quantitative variables, you should be able to • determine if they are related • determine how they are related • develop predictive models “At the Mercy of the Manager” by Craig Israelson Financial Planning , 30(5), pp. 54 - 56 Tax Efficiency – measure of tax due to investment portfolios – ranges from 0 – 100 – higher efficiency = less tax Consider: Tax Efficiency vs Stock Portfolios

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% OF ENERGY SECURITIES TAX EFFICIENCY 11 10 9 8 7 6 5 4 3 100 90 80 70 60 50 TAX EFFICIENCY vs % OF ENERGY SECURITIES
% OF ENERGY SECURITIES TAX EFFICIENCY 11 10 9 8 7 6 5 4 3 100 90 80 70 60 50 TAX EFFICIENCY vs % OF ENERGY SECURITIES Slope Estimate: -5 Intercept: 112 Rise Run Y = - 5 X + 112 where Y = Tax Efficiency (Response, Dependent variable) and X = % of Investments in energy stocks (Explanatory, Independent variable) Regression Equation

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Y = - 5 X + 112 where Y = Tax Efficiency and X = % of Investments in energy stocks

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Unformatted text preview: Interpretation of Constants? Regression Equation Problems: • Our eye tends to minimize the wrong distance. • Our estimate should not depend on the person performing the analysis Beware of • Extrapolation • Outliers / Influential Points • Nonlinear Relationships • Assuming Cause and Effect Nonlinear Relationships . Cooking Time Taste Rating . . . . . . . . . . . . . . . . . . Cause and Effect . Number of Churches Alcohol consumption . . . . . . . . . Key Concepts • simple linear regression equation • interpretation of coefficients • parameter vs statistic • impact of outliers • relationship between graphs and numerical summaries Assignment • Read Chapter 14 sections 1 – 2 • Review the Minitab Tutorial in Regression • Reproduce the text example output using Minitab • Work problems listed in WebCT Assignment Folder The End...
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