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Event Models
A. C. Nielson Report
4-5
(∑ XY − n X Y )
b1 =
(∑ X − n X )
2
and bo = Y -b1 X
H0 : β≥0 H1 : β<0
• If there is no apriory notion on slope whatsoever, the
hypothesis would be
H0 : β=0 H1 : β≠0
• The appropriate test here is t-test and
tcalc = (b1-0)/ Standard Error of Estimate (SEE) b1
4-20 How far from zero does the slope need to be? Application of
Hypothesis Testing
s= ∑ (Yi − yi)
1
2
,
( n − 2)
Heteroscedasticiy
• The model is said to be homoscedastic when the error term εt
has zero expected value and constant variance for all
observations
• If the variance is not constant the model is called
heteroscedastic. In this case the standard error of regression
coefficient is underestimated causing the calculated t statistic
to be larger than they should be and our incorrectly concluding
that a variable is statistically significant. i.e. rejecting the null
hypothesis that slope is zero.
• This can be evaluated by looking at the scatter-plot of
residuals.
4-31
Model Evaluation for Heteroscedisticity by Scatter-plots
of Residuals
Cross-Sectional Forecasting
• All data pertain to one time period rather that a time series
• Examples would like-stores sales forecast
– Sales = b0 + b1 (Population in area served)
Given the original data of several stores – their population
served and corresponding sales
4-35
Retail Sales (RS) in $ Million: Clear +ve Trend and a
consistent Seasonal Pattern