Interpretative Problems In Multicollinearity

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Multicollinearity often causes huge interpretative problems in linear regression analysis. There is a large body of literature on different sources of multicollinearity (Montgomery et al., 2001; Kutner et al., 2005; Belsley et al., 1980). One of the important and almost inevitable sources of multicollinearity is the existence of high leverage points in the multiple regression models. There are three different groups of strange (or unusual) points that may occur in a data set. These points need further attention because their presences have a great influence on the OLS estimates (Moller et al., 2005). The first group is regression outliers which sometimes are called vertical outliers (Rousseeuw and Van Zomeren, 1990). These outliers stand apart from the general pattern for the bulk of the data. Specifically, they are observations which are discrepant in terms of their values. Relatively large residuals finely characterized regression outliers. The farther the observation is from the mean of (either in a positive or negative direction), the greater is its leverage.( Bagheri et al, 2010) The leverage points usually classified as good leverage points and bad leverage points. Good leverage points always consistent with the true regression line. Hence, bad leverage points are observations that not only deviate from the regression line that best fits the data but also fall far from the majority of the explanatory variables in the data set (see Montgomery et al., 2001; Kamruzzaman and Imon, 2002; Kutner et al., 2005; Chatterjee and Hadi, 2006). Additionally, observations which have unduly influence on the regression results are identified as influential observations (Bagheri et al, 2011). In the regression analysis, leverage point... ... middle of paper ... ...erent multicollinearity diagnostics (Montgomery.D.C, 2001). New robust VIFs developed which are based on robust coefficient determination ( ). Several robust coefficient determinations exist in the literature of robust method such as Rousseeuw and Hubert (1997) and Splus Robust Library User’s Guide (2001). The MM estimator which is introduced by Yohai (1987) is one of the robust methods which have desirable properties that attempts to downweight high leverage points as well as large residuals. A robust coefficient determination is proposed based on applying the MM estimator to fit the regression model. Following this, the robust VIF is developed. New proposed robust VIFs will be applied to a well known non collinear data set. To compare the performance of these robust multicollinearity diagnostics methods, a Monte Carlo simulation study will also be carried out.

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