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

Case study, Anderson Nuclear Power Plant will be "mothballed" at the end of...

Anderson Nuclear Power Plant will be "mothballed" at the end of its useful life (approximately 20 years) at great expense. The expense recognition principle requires that expenses

Joint product decisions, JOINT PRODUCT DECISIONS When a manufacturing C...

JOINT PRODUCT DECISIONS When a manufacturing Company carries out a process operation in which 2 or more joint products are made from a common process a number of decision troub

Explain sales budget, Explain Sales budget A sales budget is an estimat...

Explain Sales budget A sales budget is an estimate of expected sale during a budget period. A sales budget is known as a nerve center or backbone of the enterprise. The degree

Advantages-disadvantages-standard costing, The advantages and disadvantages...

The advantages and disadvantages of standard costing The benefits for controlling having a standard costing system in operation can be summed up as follows; Cautiously pl

Budget preparation-monitoring and evaluation , Budget Preparation The ...

Budget Preparation The organization's budget is ready following the acceptance and sanction of the decision packages. Once the budget of organization has been accepted manager

Total inventory costs formula , Total inventory costs formula Total in...

Total inventory costs formula Total inventory costs will be as follows: Total inventory costs = Purchase price cost + carrying costs + stock-out cost + order costs. Tota

Positioning, Positioning An essential part of the planning process is p...

Positioning An essential part of the planning process is positioning the organization to attain its goals. Positioning is a wide concept and depends on gathering and evaluating

Explain the terms - maintenance and improvement, Explain the terms - mainte...

Explain the terms - maintenance and improvement Maintenance ; under the maintenance function, the management must first establish policies rules directives and standard operat

Homework, IF net income totaled $18,000 for one year, beginning assets were...

IF net income totaled $18,000 for one year, beginning assets were $100.000 and ending assets were $140,000, then Return on Assets for the year as a percentage will be?

Characterize the short run production function of a firm, Question 1: (...

Question 1: (a) ‘The car industry is characterized by broad products differentiation' Analyse the long run situation of a car producer, commenting on profitability and efficien

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