volume 1, page 345 of curriculum, 3rd paragraph, 6th line … says
‘if we make the mistake of including dummy variables for four rather than three quarters, we have violated assumption 2 of multiple regression model…’
can anyone possibly explain , How have we violated assumption 2 that says independent variables are not random and no exact linear relation exists between them?
if your dummy variables are q1, q2, q3 and q4 than their sum is equal to 1.
alright if we have dummy variables for all four quarters instead of three then their sum is equal to 1, which means…? *scratching my head…blink blink*
If the sum of all the variables = 4… Then there exists a linear relationship where
q1+q2+q3+q4 = 1. But regression assumes that the variables are independent. But in this case it becomes dependant… So we got to eliminate atleast 1 variable from this…
Hope I made it a little clearer for you…
ah… ok
thank you sooraj and maratikus