Explore the World's Best Ideas

Join today and uncover 100+ curated journeys from 50+ topics. Unlock access to our mobile app with extensive features.

OLS Assumptions are the **Conditions** that we need to consider them before performing **Regression Analysis**.

Some OLS Assumptions are:

- Linearity
- No Endogeneity
- Normality
- Zero Mean of Error Terms
- Homoscedasticity
- No Autocorrelation
- No Multicollinearity

2

63 reads

MORE IDEAS ON THIS

To detect autocorrelation

- Plot all points and check for patterns or
- Use
**Durbin - Watson test**.

There is no remedy for Autocorrelation. Instead of linear regression, we can use

- Autoregressive Models.
- Moving Average Models.

2

17 reads

Ordinary least squares, or linear least squares, estimates the parameters in a regression model by minimizing the sum of the squared residuals.

2

93 reads

In order to prevent Heteroscedasticity, we need to

- Look for Omitted Variable Bias.
- Look for
**Outliers**. - Apply log Transformation.

2

21 reads

If the pattern doesn't looks like a Straight Line, then we need to apply

- A Non Linear Regression or
- Exponential Transformation or
- Log Transformation.

2

37 reads

- Technically, Endogeneity occurs when a
**predictor variable**(x) in a regression model is**correlated**with the**error term**(e) in the model. - This usually occurs due to the
*Omitted Variable Bias*(when we forget to include a releva...

2

26 reads

- We need to consider that our
**Error Term**is normally distributed. - We only need Normal Distribution while making
**Statistical Inferences**. - T-tests and F-tests work because we have assumed normality.
- If Error Term isn't normally distribute...

2

25 reads

- If the
**Mean of the Error Terms**is not expected to be zero then the line is not the Best fitting one. - Having an Intercept Solves the problem.

2

24 reads

- Homoscedasticity means to have “
**Equal Variance**”. The error terms should have equal variance with one another. - When the error terms don’t have “Equal Variance”, then
**Heteroscedasticity**happens.

2

21 reads

**Autocorrelation**is a mathematical representation of the degree of similarity between a given time series and a lagged version of itself over successive time intervals.- It is similar to the Correlation between two different
**Time Series**but Autocorrela...

2

19 reads

- A Linear Regression is Linear because the Equation is Linear.
- To verify the Linearity between Independent and Dependent Variable apply
**Scatter plot**. - If the Data points form a pattern that looks like a Straight Line then Linear Regression is Suitable.

2

40 reads

To fix Multicollinearity:

- If the Dataset is small, we can drop one independent variable. Or we can Transform them into One Variable (Eg. Average of two Variables)
- If the Dataset is large, we will use
**Ridge**and**Lasso**Regression.

2

22 reads

- We observe Multicollinearity when two or more
**Independent Variables**in a model are “**Highly Correlated**”. - Correlation could be
*Positive*(or)*Negative*. - This will lead result in less reliable predictions.
- Multicollineari...

2

19 reads

CURATED FROM

These are some of the Assumptions to be pondered while Applying Ordinary Least Square Method and Performing Regression Analysis.

“

More like this

Not all assumptions need to be tested. To identify what is more critical at this moment, we can prioritise them on a quadrant, in which horizontally we have scale of evidence (how much evidence we have for it to be true) and vertically importance of the assumption (how critical it is to happen so...

**Consider on what basis you can justify any claims.** You may rely on external evidence, personal preferences or experiences. All of them will at some stage point to our assumptions we accept as fundamental.

Our assumptions are unexamined ideas. They are vital as they underpi...

*In this world of uncertainties, nothing but death and taxes are sureshot in our lives.*

There are however some assumptions that withstand the test of time. These assumptions take into account basic human psychology and historical data.

Read & Learn

20x Faster

without

deep**stash**

with

deep**stash**

with

deep**stash**

Access to 200,000+ ideas

—

Access to the mobile app

—

Unlimited idea saving & library

—

—

Unlimited history

—

—

Unlimited listening to ideas

—

—

Downloading & offline access

—

—

Personalized recommendations

—

—

Supercharge your mind with one idea per day

Enter your email and spend 1 minute every day to learn something new.

I agree to receive email updates