STAT 331 Project

Auto sales vs Oil Prices

Team Members

Salman Asif, Jawed Karim, Umer Iqbal,

Gautam Karwa, Nicky Chen, Chulmin Lee
Introduction
 Purpose of project

 Analyze the relationship between auto

sales and oil prices, electronic goods
sales and sports sales

 Regressors

 Electronic sales and sports goods sales

Source of Data

 Our datasets are U.S. monthly auto sales for retail, U.S.
monthly gasoline price, U.S. monthly electronics sales,
and U.S. monthly sporting goods sales from Jan, 1992 to
Aug, 2008. The gasoline price is U.S. city average.

 Source: U.S. Census, and U.S. Bureau of Labor

Statistics
Analysis
 Selection of model
 Based on R-squared
 Methods used in the analysis
 Estimation and Significance of Regressors
 Residual Diagnostics
 Prediction intervals
 Plots and visuals
Proposed Model
 AUTO SALES = β0 + β1 x OIL PRICE +
β2 x ESALES + β3 x SSALES + ei

Where
 AUTO SALES = Monthly auto sales in US ($ Millions)
 OIL PRICES = Average monthly oil prices ($/gallon)
 ESALES = Electronic goods sales ($ Millions)
 SSALES = Sports goods sales ($ Millions)
Diagnostics
 Homoscedasity
 Residual vs Fitted plot
Diagnostics
 Homoscedasity
 Scatter plot of residuals
Diagnostics
 Auto Correlation
 DW test
Durbin-Watson test
data: AutoSales ~ Gasoline + Electronic + Sporting
DW = 0.8647, p-value < 2.2e-16
alternative hypothesis: true autocorrelation is greater than 0

Significant p-value
Diagnostics
 Auto Correlation
 The runs test

Runs Test - Two sided

data: l$residuals
Standardized Runs
Statistic = -5.8129, p-value = 6.14e-09

Significant p-value
Diagnostics
 Auto Correlation
 ACF plot ACF plot of residuals

1 .0
0 .8
0 .6
ACF

0 .4
0 .2
0 .0

0 5 10 15 20

Lag
Diagnostics
 Normality
 Histogram of Residuals
Diagnostics
 Normality
 QQ Plot
Diagnostics
 Normality
 Shapiro-Wilk Test

Shapiro-Wilk normality test

data: l$residuals
W = 0.9259, p-value = 1.608e-08
Normalizing the Residuals
 Shapiro-Wilk Test

Shapiro-Wilk normality test

data: L$residuals
W = 0.9939, p-value = 0.6147
Normalizing the Residuals
 Histogram of Residuals
40 Histogram of Residuals
F re q u e n c y

30
20
10
0

-6000 -4000 -2000 0 2000 4000

Residuals
Normalizing the Residuals
 QQ plot
Normal Q-Q Plot

4000
2000
S a m p le Q u a n tile s

0
-2 0 0 0
-4 0 0 0
-6 0 0 0

-3 -2 -1 0 1 2 3

Theoretical Quantiles
Results of Diagnostics
 Homoscedasticity
 Residuals are not Homoscedastic
 Correlation
 Residuals are Correlated
 Normality
 Residuals are Normal
Implications
 Observed that increase in electronic
goods sales and/or sports sales causes
an increase in auto sales
 Decrease in oil prices results in
increase in Auto sales
 Most Important Regressor is Oil Prices
 Proposed model is useful for predicting
auto sales
Pros and cons of Model
 Pros
 R-squared value is high
 Regressors are significant
 Model has good predictive value
 Cons
 Residuals are not homoscedastic and not
uncorrelated
Conclusions
 Oil Prices very good at predicting
auto sales
 Positive relationship between auto
sales and electronic goods and
sporting goods
 Proposed model fits the data very
well
 Residuals are normal but not
homoscedastic and uncorrelated
Recommendations
 Increase our sample size
 Add more regressors
 Perform variance-stabilizing
transformations
Questions?