《Financial Statistics and Econometrics课件》Lecture-09-10.pptVIP

Lectures 9 10Classical linear regression model assumptions and diagnostics Violation of the Assumptions of the CLRM In the previous lectures: 1. E ut 0 2. Var ut ?2 ? 3. Cov ui,uj 0 In this lecture: 4. Cov u, x 0 5. ut ? N 0,?2 A normal distribution is not skewed and is defined to have a coefficient of kurtosis of 3. Skewness b1 and kurtosis b2 are the standardised third and fourth moments of a distribution. Normal versus Skewed Distributions A normal distribution A skewed distribution Leptokurtic versus Normal Distribution Testing for Normality Bera and Jarque BJ Test: testing the residuals for normality by testing whether the coefficient of skewness and the coefficient of excess kurtosis are jointly zero. It can be proved that the coefficients of skewness and kurtosis can be expressed respectively as: We estimate b1 and b2 using the residuals from the OLS regression, . The Bera Jarque test statistic is given by What do we do if we find evidence of Non-Normality? For sample sizes that are sufficiently large, violation of the normality assumption is virtually inconsequential. Observations that do not fit in with the pattern of the remainder of the data are known as outliers, which cause one or two very extreme residuals and therefore, cause us to reject the normality assumption. One way to improve is to use dummy variables to remove those outliers. Create a new variable: D87M10t 1 during October 1987 and zero otherwise. This effectively knocks out that observation. Other Issues: Multicollinearity Multicollinearity This problem occurs when the explanatory variables are very highly correlated with each other. Perfect multicollinearity: there is an exact relationship between two or more explanatory variables. In this case, it cannot estimate all the coefficients. - e.g. suppose x3 2x2 and the model is yt ?1 + ?2x2t + ?3x3t + ?4x4t + ut then ?2 and ?3 cannot be estimated individually. Near multicollinearity: there