Independence of observations, Managerial Accounting

Assignment Help:

Independence of observations

An important assumption for the simple linear regression model is the independence of errors. In many time series models, this assumption is violated because of the correlation of errors in successive observations. This is termed to as autocorrelation.

Autocorrelation occurs if a positive error is followed by another positive error and a negative error is followed by another negative error. If autocorrelation occurs then time should be considered as an important independent variable and therefore time varies analysis should be used.

We can use Durbin Watson ‘D’ statistics to determine whether observations are independent.
D = ∑(ei – ei-1)2
        ∑ei2

Where:

ei is the error in time i
ei-I is the error in time i-I

The Durbin Watson statistics provides a measure of association between successive values of the error term. The computed statistics is compared against two tabulated values du and dl that depend on the desired confidence level of the test and the degrees of freedom of the data.

If the computed Durbin Watson “D” statistics is greater than Du, then we can conclude that there’s no positive correlation between error terms.

If dl ≤ D≤ du then the test is inconclusive and therefore we can neither accept nor reject the null hypothesis.


Related Discussions:- Independence of observations

Control-role of management accountant , Control Control includes a ...

Control Control includes a comparison of actual performance with the plan so that deviation from the plan can be identified and corrective action taken. It can be define

Controlling, Controlling Things hardly go exactly as planned, and manag...

Controlling Things hardly go exactly as planned, and management should make a concerted effort to the monitor and adjust for their deviations. The managerial accountant is the

Help, Jackson County Senior Services is a nonprofit organization devoted to...

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three serv

Management accounting, Management Accounting An accounting discipline c...

Management Accounting An accounting discipline concerned with the use of financial information. It used to relevant information by managers and other decision makers inside a s

The incredible game theorist, The Incredible game theorist Mr. Nash's w...

The Incredible game theorist Mr. Nash's work needed refining. First, it applies to games played only once, or in which players move simultaneously. But virtually all interestin

Features of a queue, Features of a queue A calling population – ref...

Features of a queue A calling population – refers to the number of potential customers. This number may be considered finite or infinite. An infinite calling population is

The least-cost method, The least-cost method The process is described a...

The least-cost method The process is described as follows: Assign as much as possible to the variable with the least unit cost in the whole tableau. (Ties are broken randomly).

Prepare an overhead analysis sheet, QUESTION 1: P A RT A You are...

QUESTION 1: P A RT A You are the Cost Accountant of an industrial concern and have been assigned the duty of preparing a cost accounting system. Initially it has been de

Make and buy, The Rohr Company’s old equipment for making subassemblies is ...

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action: (a) Completely replacing the old equipment with new equipme

Job order costing, Prepare Summary Journal Entries to record the( 1) requi...

Prepare Summary Journal Entries to record the( 1) requistion slips

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd