BA Management Studies Research Methods

Lecture 8: Quantitative data analysis

Alexandra Dias
University of Leicester School of Management

Overview of the Lecture

Making sense of Quantitative Data Bivariate analysis Multivariate analysis Quantitative data analysis Statistical signicance: Testing procedure Types of error Tests of statistical signicance

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Bivariate analysis (analysis of two variables at a time)

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Bivariate analysis
Explores relationships between variables Searches for co-variance and correlations Cannot establish causality Can sometimes infer the direction of a causal relationship Contingency tables connects the frequencies of two variables helps you identify any patterns of association
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Pearsons r: the relationship between two interval/ratio variables

Coecient shows the strength and direction of the relationship lies between -1 (perfect negative relationship) and +1 (perfect positive relationship) Relationships must be linear for the method to work, so, plot a scatter diagram rst

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Pearsons r: example
Relation between credit rating class and probability of default (PD). Is it linear? Can we use r?

If: 1=AAA,2=AA,...,9=C then r(class, Ln(P D)) = 0.995

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Pearsons r: the relationship between two interval/ratio variables

Coecient of determination found by squaring the value of r shows how much of the variation in one variable is due to the other variable here we are assuming causality! In the following example causality is justied by nancial theory and not by statistical analysis

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Coecient of determination: example

Financial Theory says that stock returns can be explained by the nancial market returns Assume that the market returns are given by the S&P 500 index and inspect if these explain the returns on the IBM stock. Dependent variable: returns IBM

Independent or explanatory variable: S&P 500

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Coecient of determination: example

Data: Daily returns on closing prices from 1 Jan 2002 to 1 Jan 2012.
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Analysing the relationships between other, or mixed types of variables

Spearmans rho: for the relationship between two ordinal variables, or one ordinal and one interval/ratio variable (values of -1 to +1) Phi coecient: for the relationship between two dichotomous variables (values of -1 to +1) Cramers V: for the relationship between two nominal variables, or one nominal and one ordinal variable (values between 0 and 1)
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Analysing the relationships between other, or mixed types of variables

Comparing means: when a nominal variable is identied as the independent variable, the means of the interval/ratio variable are compared for each sub-group of the nominal variable eta: for the level of association between dierent types of variables (nominal and interval/ratio), even when there is no linear relationship between them

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Multivariate analysis (three or more variables)

The relationship between two variables might be spurious each variable could be related to a separate, third variable There might be an intervening variable A third variable might be moderating the relationship Ex: correlation between stocks on UBS CH (bank) and stocks on a Pensions Fund managing rm in UK could be moderated by global nancial market performance
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Quantitative Data Analysis

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Statistical signicance
How condent can we be that the ndings from a sample can be generalized to the population as a whole? How risky is it to make this inference? Only applies to probability samples

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Statistical signicance of the mean: Gym visitors example

We can be 95% condent that the population mean (the unknown real mean) is between 33.55+1.961.04 = 31.5
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and 33.551.961.04 = 35.6

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Testing procedure for statistical signicance

1. Set up a null hypothesis: suggesting no relationship between examined variables in the population from which the sample was drawn; 2. Decide on an acceptable level of statistical signicance; Usually 5% or 1% 3. Use a statistical test; 4. If acceptable level attained, reject null hypothesis; If not attained, do not reject it.
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IBM and S&P 500 example

Return(IBM) = 0.00018 + 0.82 Return(S&P500) but 0.00018 is not signicant (p > 0.05) hence Return(IBM) = 0.82 Return(S&P500)
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We might be wrong to accept or reject the null hypothesis

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Tests of statistical signicance

The chi-square test establishes how condent we can be that there is a relationship between the two variables in the population Correlation and statistical signicance provides information about the likelihood that the coecient will be found in the population from which the sample was taken Comparing means and statistical signicance the F statistic expresses the amount of explained variance in relation to the amount of error variance
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The chi-square test

The chi-square (2) test is applied to contingency tables. It establishes how condent we can be that there is a relationship between the two variables in the population. The test calculates for each cell in the table an expected frequency or value (one that would occur on the basis of chance alone). The chi-square value is determined by calculating the dierences between the actual and expected values for each cell and then summing those dierences.
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The chi-square test (cont.)

Whether a chi-square value achieves statistical signicance depends not just on its magnitude but also on the number of categories of the two variables being analysed. This latter issue is governed by what is known as the degrees of freedom associated with the table.

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Correlation and signicance

How condent can we be about a relationship between two variables? Whether a correlation coecient is statistically signicant depends on: the size of the coecient (the higher the better) the size of the sample (the larger the better) Ex: if coecient is 0.62 and p < 0.05, we can reject the null hypothesis of no correlation

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Comparing means
Statistical signicance of relationship between two variables means Total variation in dependent variable: error variance (variation within subgroups) explained variance (variation between subgroups) F statistic expresses amount of explained variance in relation to amount of error variance
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References
Brymann and Bell, 2011, Business Research Methods, 3rd Ed, Oxford University Press 2 Chapter 14.

Easterby-Smith, Thorpe and Jackson, 2008, Management Research, 3rd Ed, Sage 2 Chapter 11.

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