Advanced Mathematics for

Business
Topic 8:
Regression Analysis 2

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Regression Analysis 2 Topic 8 - 8.2

Scope and Coverage

This topic will cover:
Regression using software
Multiple linear regression
- Extending regression models with dummy variables
- Interpreting models

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Regression Analysis 2 Topic 8 - 8.3

Learning Outcomes
By the end of this topic students will be able to:
Evaluate results from regression analysis
Interpret results from regression analysis
Recognise the possibility to extend regression
analysis
- Dummy variables

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Regression Analysis 2 Topic 8 - 8.4

The Simple Linear Model - 1

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Regression Analysis 2 Topic 8 - 8.5

The Simple Linear Model - 2

x

25

3.07

50

5.64

75

9.63

100 10.26

25

1.44

50

5.58

75 14.64
100

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6.94

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Regression Analysis 2 Topic 8 - 8.6

Regression Using Software

Many software packages
-

OpenOffice, Gretl
MS Excel
SPSS, Minitab, SAS
R, S

MS Excel
- 2007/2010 Data/Data Analysis/Regression
- Older Tools/Data Analysis/ Regression
Then all versions are similar

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Regression Analysis 2 Topic 8 - 8.7

Is Model Useful in Forecasting? - 1

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Regression Analysis 2 Topic 8 - 8.8

Is Model Useful in Forecasting? - 2

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Regression Analysis 2 Topic 8 - 8.9

The Insignificant Constant

Reasons Not to Set Constant Term to Zero
-

It prevents model being biased

Usually interested in the predictor variables anyway
You dont need to collect data for it
Can help if data is only locally linear

Reason to Set constant Term to Zero

- If it is supposed to be zero
Strong theoretical grounds
But care needed with calculation and interpretation of R 2

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Regression Analysis 2 Topic 8 - 8.10

Is Model Useful in Forecasting? - 3

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Regression Analysis 2 Topic 8 - 8.11

Multiple Linear Regression - 1

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Regression Analysis 2 Topic 8 - 8.12

Multiple Linear Regression - 2

Estate agent (realtor) is establishing an office in a
new location
Wishes to build a model of advertised prices
Collects competitor data on;
-

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Internal area
Land
Distance from nearest school
City region

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Regression Analysis 2 Topic 8 - 8.13

Example
Property
1
2
3
4
5
6
7
8
9
10
11
12

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Price
457
487
218
300
358
658
402
541
358
444
298
462

School
3
1
3
4
2
1
2
2
3
1
3
1

Land
1791
800
759
829
630
655
999
920
1185
787
597
1447

Area
165
177
94
137
110
201
85
146
112
155
180
200

District
FD
FD
FD
FD
AC
AC
AC
AC
Other
Other
Other
Other

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Regression Analysis 2 Topic 8 - 8.14

Dummy Variables
Property Price School
1
457
3
2
487
1
3
218
3
4
300
4
5
358
2
6
658
1
7
402
2
8
541
2
9
358
3
10
444
1
11
298
3
12
462
1

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Land
1791
800
759
829
630
655
999
920
1185
787
597
1447

Area
165
177
94
137
110
201
85
146
112
155
180
200

AC
0
0
0
0
1
1
1
1
0
0
0
0

FD
1
1
1
1
0
0
0
0
0
0
0
0

District
FD
FD
FD
FD
AC
AC
AC
AC
Other
Other
Other
Other

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Regression Analysis 2 Topic 8 - 8.15

The Model Idea

price =
constant +
x (km from a school) +
x (land in m2) +
x (floor area in m2) +
(if in AC) +
(if in FD)

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Regression Analysis 2 Topic 8 - 8.16

Enter Data into Software - 1

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Regression Analysis 2 Topic 8 - 8.17

Enter Data into Software - 2

Response
Predictors

New Worksheet

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Regression Analysis 2 Topic 8 - 8.18

Model Output - 1

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Regression Analysis 2 Topic 8 - 8.19

R and Adjusted R
2

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Regression Analysis 2 Topic 8 - 8.20

Model Output - 2

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Regression Analysis 2 Topic 8 - 8.21

Model Output - 3

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Regression Analysis 2 Topic 8 - 8.22

Model Output - 4

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Regression Analysis 2 Topic 8 - 8.23

Model Output - 5

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Regression Analysis 2 Topic 8 - 8.24

The Model
Equation
- expected price = 45.72 +2.179 x area) + (148.8 x
AC)

Suppose property is in AC and is of 100m 2 what is

expected advertised price?
- expected price = 45.72 +2.179 x 100) + (148.8 x 1)
- expected price = 412.42

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Regression Analysis 2 Topic 8 - 8.25

Recap
By the end of this topic students will be able to:
Evaluate results from regression analysis
Interpret results from regression analysis
Recognize possibility to extend regression analysis
- Dummy variables

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Regression Analysis 2 Topic 8 - 8.26

Bibliography
Hinton, PR. Statistics Explained. Routledge
Keast, S. and Towler M. Rational Decision Making
for Managers. Wiley
Wisniewski, M. Quantitative Methods for Decision
Makers. FT Prentice Hall

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Regression Analysis 2 Topic 8 - 8.27

Topic 8 Regression Analysis 2

Any Questions?

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