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On the Effect of Autocorrelation in Regression Model due to Specification Error

Babatunde, O. S. and Ikughur, A. J and Ogunmola, A.O and Oguntunde, P.E. (2014) On the Effect of Autocorrelation in Regression Model due to Specification Error. International Journal of Modern Mathematical Sciences, 10 (3). pp. 239-246. ISSN 2166-286X

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Abstract

The main cause of autocorrelation is omitted variables from the model. When an important independent variable is omitted from a model, its effect on the dependent variable becomes part of the error term. Hence, if the omitted variable has a positive or negative correlation with the dependent variable, it is likely to cause error terms that are positively or negative correlated. There are number of tests for specification error in detecting the errors of omitted variables from a regression analysis, one rarely knows the best test to use. This research uses bootstrapping experiment and some properties which estimators should possess if they are to be accepted as good and satisfactory estimates of the population parameters, the models investigated in the bootstrapping experiment consist of two autocorrelation models with autocorrelation level ρ = 0.5 and 0.9. A bootstrap simulation approach was used to generate data for each of the models at different sample sizes (n) 20, 30, 50, and 80 respectively each with 100 replications(r). For the models considered, the experiment reveals that the estimated β’s were seriously affected by autocorrelation which may be due to omitted variables as the autocorrelation level varies in the different models (i.e. it produces a bias and inefficient estimator).

Item Type: Article
Uncontrolled Keywords: specification error, autocorrelation, omitted variables, bootstrapping, estimators
Subjects: Q Science > Q Science (General)
Q Science > QA Mathematics
Divisions: Faculty of Engineering, Science and Mathematics > School of Mathematics
Depositing User: Mrs Hannah Akinwumi
Date Deposited: 01 Mar 2016 10:15
Last Modified: 01 Mar 2016 10:15
URI: http://eprints.covenantuniversity.edu.ng/id/eprint/6278

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