CHAPTER 13 Simple Linear Regression

13-1

 hite Test for Equality of Variance and Potential W Regression Model Misspecification
In Section 13.5 the four assumptions of regression analysis were evaluated visually through graphic displays in a residual analysis. Taking a more formal, confirmatory approach, in Section 13.6 the Durbin-Watson statistic was used to test the assumption of independence of errors. In this section you will learn how to perform a more formal test of the important assumption of equality of variance by using the White statistic. The White test is based on a regression analysis with the squared residuals from the initial linear regression analysis used as the dependent variable. The independent variables in the regression analysis used to compute the White test statistic consist of the independent variable used in the initial regression analysis and its square.The White test procedure consists of four steps: 1. Perform an initial linear regression analysis and use the sample regression equation ni = b0 + b1 Xi Y ni for each of the n observations. to obtain the residual ei = Yi - Y 2. Perform a regression analysis with the squared residuals e2 i as the dependent variable and the initial independent variable and its square as the two independent variables. The regression equation for this analysis is

n2 e + b1 Xi + b 2 X 2 i = b0 i
3. Use the results of this regression analysis to obtain the White test statistic, nr 2, the product of the sample size n and r 2, the unadjusted coefficient of multiple determination. Under the null hypothesis of equal variance, the White test statistic nr 2 follows a chi-square distribution with 2 degrees of freedomthe number of independent variables in the secondary regression equation. 4. For a level of significance a, if the White test statistic nr 2 is greater than the critical value of x2 with 2 degrees of freedom, you reject the null hypothesis of equal variance and conclude the equality of variance assumption in your regression analysis is violated. You must then use either data transformations or weighted least-squares methods (see reference 4) for a proper regression analysis. If the White test statistic nr 2 is less than or equal to the critical value x2 with 2 degrees of freedom you can conclude there is no violation in the equal variance assumption. You should use the White test after completing a thorough residual analysis as discussed in Section 13.5. Although the White test is mainly used for assessing equal variance of the residuals, it is considered to be a generalized test procedure because it also evaluates model misspecification. When the visual impression from a residual plot makes you suspect a violation in the equality of variance assumption, then the White test would be used to try to confirm that by rejecting the null hypothesis of equality of variance. On the other hand, if the visual impression from a residual plot does not seem to indicate a lack of homoscedasticity, then a rejection of the null hypothesis would indicate regression model misspecificationperhaps a curvilinear rather than linear fit would be more appropriate or perhaps a key independent variable was not included in the regression analysis. Although Whites test can be used with small samples, it was derived as a large sample test and intended for use when n exceeds 30. To test the null hypothesis of equality of variance using a 0.05 level of significance for the site selection data, you compare the White test statistic to its critical value 5.991 taken from the chi-square distribution with 2 degrees of freedom (see Table E.4). Given that the White test statistic 0.2141is less than the critical value 5.991, you do not reject the null hypothesis (the p value is 0.8985) and conclude that the equality of variance assumption has not been violated.

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CHAPTER 13 Simple Linear Regression

EG13.5 RESIDUAL ANALYSIS

White Test
Key Technique Use the techniques discussed in Section EG13.2 and EG13.5 for performing regression analyses and constructing residual plots. Example Perform the White test for the Sunflowers Apparel data on page 474. In-Depth Excel Use the worksheets of the White test workbook as models and templates. The WhiteDATA worksheet of this workbook already computes the residuals for the example. Column D formulas compute the predicted Y values (labeled Predicted Annual Sales in Figure 13.10 on page 489) by first multiplying the X values by the b1 coefficient in cell B18 of the COMPUTE worksheet and then adding the b0 coefficient (in cell B17

of COMPUTE). Column E formulas compute residuals by subtracting the predicted Y values from the Y values (labeled Annual Sales in Figure 13.10). For other problems, copy the regression data to the SLRData worksheet and use Section EG13.2 to perform a regression analysis. Then copy Y values to column A and the X values to column B of the WhiteDATA worksheet, thereby reversing the normal order of regression data (X then Y) typically found in the examples in this book. If there are less than 14 pairs of values, delete rows from the bottom as necessary. If there are more than 14 pairs of values, select the cell range C15:F15 and copy down as many rows as necessary. Open to the WhiteTest worksheet and edit the array formula in the cell range L2:N6 to reflect the proper cell ranges if the new regression data contains something other than 14 pairs of values.

REFErENCE
1. White, H. A Heteroscedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroscedasticity. Econometrica, 48(1980): 817838.