regression_overhead - Regression 1 REGRESSION Introduction...

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Unformatted text preview: Regression 1 REGRESSION Introduction Data version of best linear prediction. Very widely used. Available data Y i = value of response variable for i th observation X i 1 ,...,X ip = values of predictor variables 1 through p for the i th observation Regression 2 Goals: to understand how Y is related to X 1 ,...,X p . to model the conditional expectation of Y given X 1 ,...,X p to predict future Y values from X 1 ,...,X p Regression 3 Straight Line Regression only one predictor variable model is Y i = + 1 X i + i and 1 are the unknown intercept and slope of the line 1 ,..., n are iid with mean 0 and constant variance 2 often the i s are assumed to be normally distributed Regression 4 Least-squares estimation Regression 5 least-squares estimate finds b and b 1 to minimizes n X i =1 { Y i- ( b + b 1 X i ) } 2 Regression 6 using calculus, one can show that b 1 = n i =1 ( Y i- Y )( X i- X ) n i =1 ( X i- X ) 2 . and b = Y- b 1 X Regression 7 the least-squares line is b Y = b + b 1 X = Y + b 1 ( X- X ) = Y + n i =1 ( Y i- Y )( X i- X ) n i =1 ( X i- X ) 2 ( X- X ) = Y + s xy s 2 x ( X- X ) , where s xy = ( n- 1)- 1 n X i =1 ( Y i- Y )( X i- X ) and s 2 x is the sample variance of the X i s, that is, s 2 x = ( n- 1)- 1 n X i =1 ( X i- X ) 2 . Regression 8 Exercise: Show that if 1 ,..., n are IID N (0 , 2 ) then the least-squares estimates of and 1 are also the maximum likelihood estimates. Example: Some data on weekly interest rates, from Jan 1, 1970 to Dec 31, 1993, were obtained from the Federal Reserve Bank of Chicago. The URL is: http://www.chicagofed.org/economicresearchanddata/data/index.cfm Regression 9-0.01-0.005 0.005 0.01-8-6-4-2 2 4 6 x 10-3 Change in 10YR T Rate Change in AAA Rate Change in CM10 = 10-YEAR TREASURY CONSTANT MATURITY RATE (AVERAGE, NSA) plotted against AAA = MOODYS SEASONED CORPORATE AAA BOND YIELDS. Regression 10 Fitted line plot from MINITAB. Regression 11 Output from fitted line plot in MINITAB Regression Analysis: aaa_diff versus cm10_diff The regression equation is aaa_diff = 0.0002266 + 0.572371 cm10_diff S = 0.0633340 R-Sq = 68.5 % R-Sq(adj) = 68.5 % Analysis of Variance Source DF SS MS F P Regression 1 10.8950 10.8950 2716.14 0.000 Error 1249 5.0100 0.0040 Total 1250 15.9049 Fitted Line Plot: aaa_diff versus cm10_dif Regression 12 Here is the same analysis using regression in MINITAB. The first output is the estimated regression line: The regression equation is aaa_diff = 0.00023 + 0.572 cm10_diff 1251 cases used 1 cases contain missing values Next comes the estimates, standard errors, T-statistics, and p-values: Predictor Coef SE Coef T P Constant 0.000227 0.001791 0.13 0.899 cm10_dif 0.57237 0.01098 52.12 0.000 Regression 13 The next output is S = estimate of , R 2 and adjusted R 2 : S = 0.06333 R-Sq = 68.5% R-Sq(adj) = 68.5% Finally, the analyis of variance table is printed. This tableFinally, the analyis of variance table is printed....
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regression_overhead - Regression 1 REGRESSION Introduction...

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