The Bias Estimation of Linear Regression Model with Autoregressive Scheme using Simulation Study

https://doi.org/10.48185/jmam.v2i1.131

Authors

  • Sajid Ali Khan GREEN HILLS POSTGRADUATE COLLEGE RAWALAKOT POONCH AZAD KASHMIR PAKISTAN
  • Sayyad Khurshid Government Postgraduate College Rawalakot Poonch Azad Kashmir Pakistan
  • Shabnam Arshad
  • Owais Mushtaq

Keywords:

OLS, GLS, BIAS, MONTE CARLO

Abstract

In regression modeling, first-order auto correlated errors are often a problem, when the data also suffers from independent variables. Generalized Least Squares (GLS) estimation is no longer the best alternative to Ordinary Least Squares (OLS). The Monte Carlo simulation illustrates that regression estimation using data transformed according to the GLS method provides estimates of the regression coefficients which are superior to OLS estimates. In GLS, we observe that in sample size $200$ and $\sigma$=3 with correlation level $0.90$ the bias of GLS $\beta_0$ is $-0.1737$, which is less than all bias estimates, and in sample size $200$ and $\sigma=1$ with correlation level $0.90$ the bias of GLS $\beta_0$ is $8.6802$, which is maximum in all levels. Similarly minimum and maximum bias values of OLS and GLS of $\beta_1$ are $-0.0816$, $-7.6101$ and $0.1371$, $0.1383$ respectively. The average values of parameters of the OLS and GLS estimation with different size of sample and correlation levels are estimated. It is found that for large samples both methods give similar results but for small sample size GLS is best fitted as compared to OLS.

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Published

2021-03-29

How to Cite

Khan, S. A., Khurshid, S. ., Arshad, S. . . ., & Mushtaq, O. . (2021). The Bias Estimation of Linear Regression Model with Autoregressive Scheme using Simulation Study. Journal of Mathematical Analysis and Modeling, 2(1), 26–39. https://doi.org/10.48185/jmam.v2i1.131