Skip to content
Tags

, , ,

Multicollinearity (WEDC)

October 9, 2015

What is it?

  • Two or more independent variables are correlated.

Effect?

  • Coefficients are consistent (but unreliable).
  • Standard errors are overestimated.
  • Too many Type II errors

Detection?

  • Conflicting t and F statistics; correlations among independent variables if K=2

Correction?

  • Drop one of the correlated variables
Advertisements

From → Quant

Leave a Reply

Fill in your details below or click an icon to log in:

Gravatar
WordPress.com Logo

You are commenting using your WordPress.com account. ( Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. ( Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. ( Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. ( Log Out /  Change )

Cancel

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

«
»
%d bloggers like this: