LSE的Dougherty计量经济学教材英文版chapter1.Image.Marked.pdf

1 COVARIANCE, VARIANCE, AND CORRELATION This chapter introduces covariance and correlation, two concepts that will prepare the way for the treatment of regression analysis to come. A second and equally important objective is to show you how to manipulate expressions involving sample variance and covariance. Several detailed examples are provided to give you practice. They are used very extensively in future chapters and it is vital that they become second nature to you. They simplify the mathematics and make the analysis much easier to follow. 1.1 Sample Covariance Sample covariance is a measure of association between two variables. The concept will be illustrated with a simple example. Table 1.1 shows years of schooling, S, and hourly earnings in 1992, in dollars, Y, for a subset of 20 respondents from the United States National Longitudinal Survey of Youth, the data set which is used for many of the practical illustrations and exercises in this text. S is the highest grade completed, in the case of those who did not go on to college, and 12 plus the number of years of college completed, for the others. Figure 1.1 shows the data plotted as a scatter diagram. You can see that there is a (weak) positive association between the two variables. TABLE 1.1 Observation S Y Observation S Y 1 15 17.24 11 17 15.38 2 16 15.00 12 12 12.70 3 8 14.91 13 12 26.00 4 6 4.50 14 9 7.50 5 15 18