QMM: 2nd assignment report

Submitted by:

Srikanth Kumar Konduri

10FN-109
Date: 20-September-2011

Table of Contents
Procedures adopted:.............................................................................................. 2
Interpretation of cars.xls........................................................................................ 2
Objective:........................................................................................................... 2
Basic Intuition:.................................................................................................... 2
Basic OLS regression results:.............................................................................. 2
Log-Linear regression:........................................................................................ 2
Statistical Interpretation of Log-Linear Model:....................................................2
Interpretation of fish.xls......................................................................................... 3
Objective:........................................................................................................... 3
Basic Intuition:.................................................................................................... 3
Basic trend-line fit results:.................................................................................. 3
Trend-line after removing outliers:......................................................................3
Appendix:.............................................................................................................. 3

Procedures adopted:
Software used for performing the analysis: Analysis ToolPak add-in with Microsoft
Excel.
Missing records
treatment.

are

removed

before

proceeding

with

the

econometrics

All the statistical results are interpreted at a 95% confidence level consideration.
Note: I have already submitted a written copy of this assignment to Arindham Sir
on the 10th session, so only mentioning an additional analysis to that papers
information.

Interpretation of cars.xls
Objective: To estimate a model that explains the Mpg as a function of VOL,
HP, Wt variables.

Basic Intuition: Mileage should go down as the horsepower & weight of the
Car increases as it will fuel consumption rate will be faster for such cars
compared to other cars having lower weight/horse power.

Basic OLS regression results: Though showing a high coefficient of

determination & goodness of fit, the results will not be reliable because of the
multicollinearity problem (spotted from correlation table); unreliability is further
supported by the residual plot which shows that the difference between
predicted & actual values is quite high for few records to the extent of more than
120%. Even the relationship between HP & Mpg is shown as +ve one, which is
spurious.

Log-Linear regression: The regression results improved after using the

natural logarithm values for regressing Mpg upon explanatory variables VOL, HP,
Wt. Even the problem of multicollinearity is eliminated (pair-wise correlations less
than <0.8). This time, the residual plot shows that maximum deviation of
predicted value from actual value is just 12%, that too just for 1 record.
Line fit plots further compliment the strong predictability of the model.

Statistical Interpretation of Log-Linear Model:

For every 1%
stand alone change in VOL, HP & Wt variables, the Mpg of a car will change by
+0.21%, -0.41%, and -0.52% respectively.

Interpretation of fish.xls
Objective: To explain the relationship between prices of fish in 2009 & 2008
Basic Intuition: On glancing through the data, it gave an impression that
prices for all kinds of fishes have shown an increasing trend in 2009, compared
to 2008.

Basic trend-line fit results: 75% of variation of 2009 prices is explained

by the model.

Trend-line after removing outliers: Now the model explains 88.3% of

variation, showing that presence of outliers may lead to a bias in the model
estimation.

Appendix:
The corresponding data, analysis is mentioned in the attached excel files.

Fish.xls

Cars.xls