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Key Formulas: Simple Linear Regression

This document discusses key concepts and formulas related to simple linear regression including the method of least squares, fitted regression equations, standard error, prediction intervals, sums of squares, coefficient of determination, t-statistics, and residual autocorrelation. It also provides example problems to demonstrate applying these regression procedures and interpreting results.

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38 views2 pages

Key Formulas: Simple Linear Regression

This document discusses key concepts and formulas related to simple linear regression including the method of least squares, fitted regression equations, standard error, prediction intervals, sums of squares, coefficient of determination, t-statistics, and residual autocorrelation. It also provides example problems to demonstrate applying these regression procedures and interpreting results.

Uploaded by

Ngọc Phúc
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Simple Linear Regression

Key Formulas

Sum of squared errors


SSE = ©1Y - YN 22 = ©1Y - b0 - b1X22 (1)

Method of least squares: slope formula


n©XY - ©X©Y ©1X - X21Y - Y2
b1 = 2 2
= (2)
n©X - 1©X2 ©1X - X22

Method of least squares: Y-intercept formula


©Y b1 ©X
b0 = - = Y - b1X (3)
n n

Relation between slope coefficient and correlation coefficient

2©1Y - Y22
b1 = r (4)
2©1X - X 22
Observation Fit Residual

Y = YN + 1Y - YN 2 (5)

Fitted regression equation


YN = b0 + b1X (6)

Standard error of estimate: definitional formula


©1Y - YN 22
sy # x = (7)
A n - 2
Standard error of estimate: computational formula
©Y2 - b0 ©Y - b1 ©XY
sy # x = (8)
A n - 2
Standard error of the forecast
2
sf = sy # x 1 + 1 + 1X - X 2 (9)
A n ©1X - X 22
Prediction interval
YN ; t sf (10)

Large-sample 95% prediction interval


YN ; 2sf (11)
Sum of squares and degrees of freedom decomposition

©1Y - Y22 = ©1YN - Y22 + ©1Y - YN 22


SST = SSR + SSE
(12)
df : n - 1 = 1 + (n - 2) (13)
Simple Linear Regression

Coefficient of determination
©1YN - Y22 ©1Y - YN 22
r2 = = 1 - (14)
©1Y - Y22 ©1Y - Y22

t statistic for testing H0 :b 1 = 0


b1
t =
sb1

Standard error of the regression coefficient


sb1 = sy # x> 2©1X - X 22

F statistic
Regression mean square MSR
F = = (15)
Error mean square MSE

Relation of F statistic to coefficient of determination


r 21n - 22
F = (16)
1 - r2

Residual autocorrelation coefficient

a etet - k
n

t=k+1
rk1e2 = k = 1, 2, Á , K (17)
a et
n
2
t=1

Problems

Note: Most of the following problems contain data that are to be manipulated using
regression analysis procedures. Although it is possible, even useful, to work one or
two of these by hand, it is important for you to learn how to use computer software
to solve such problems. You should become familiar with regression analysis soft-
ware while solving the following problems. If you have access to Minitab or Excel,
see the section at the end of this chapter for instructions on their use.

a. YN = 499 + .21X and r = .75


1. Which of the following situations is inconsistent?

b. YN = 100 + .9X and r = -.70


c. YN = -20 + 1X and r = .40
d. YN = -7 - 4X and r = -.90
2. AT&T (American Telegraph and Telephone) earnings in billions of dollars are

YN = .078 + .06X, where GNP is measured in billions of dollars.


estimated using GNP (gross national product). The regression equation is

a. Interpret the slope.


b. Interpret the Y-intercept.

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