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<< JRScience Home     Volume 15 No.1   June 2004     << Back to Volume Home

 

APPLICATION OF RIDGE REGRESSION TO MULTICOLLINEAR DATA

G. R. Pasha1 and Muhammad Akbar Ali Shah2

1Department of Statistics, Bahauddin Zakariya University, Multan.

2Department of Statistics, Islamia University, Bahawalpur.

Abstract: The main thrust of this paper is to investigate the  ridge regression problem in multicollinear data. The properties of ridge estimator are discussed. Variance inflation factors, eigen values and standardization problem are studied through an empirical comparison between OLS and ridge regression method by regressing number of persons employed on five variables. Methods to choose biasing parameter K are also presented.

Keywords: Biasing parameter, eigen values, inflation factors, multicollinearity, Ridge regression, standardization.