Ridge Estimation's Effectiveness for Multiple Linear Regression with Multicollinearity: An Investigation Using Monte-Carlo Simulations

https://doi.org/10.46481/jnsps.2021.304

Authors

  • O. G. Obadina Department of Mathematical Sciences, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Nigeria
  • Adedayo Funmi Adedotuun Department of Mathematics, Covenant University Ota, Ogun State, Nigeria
  • O. A. Odusanya Department of Mathematics, D.S Adegbenro (ICT) Polytechnic, Itori, Ogun State, Nigeria

Keywords:

Ridge Estimation, Multicollinearity, Monte-Carlo, Simulations

Abstract

The goal of this research is to compare multiple linear regression coefficient estimations with multicollinearity. In order to quantify the effectiveness of estimations by the mean of average mean square error, the ordinary least squares technique (OLS), modified ridge regression method (MRR), and generalized Liu-Kejian method (LKM) are compared (AMSE). For this study, the simulation scenarios are 3 and 5 independent variables with zero mean normally distributed random error of variance 1, 5, and 10, three correlation coefficient levels; i.e., low (0.2), medium (0.5), and high (0.8) are determined for independent variables, and all combinations are performed with sample sizes 15, 55, and 95 by Monte Carlo simulation technique for 1,000 times in total. As the sample size rose, the AMSE decreased. The MRR and LKM both outperformed the LSM. At random error of variance 10, the MRR is the most suitable for all circumstances.

Dimensions

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Published

2021-11-29

How to Cite

O. G. Obadina, Adedotuun, A. F., & O. A. Odusanya. (2021). Ridge Estimation’s Effectiveness for Multiple Linear Regression with Multicollinearity: An Investigation Using Monte-Carlo Simulations. Journal of the Nigerian Society of Physical Sciences, 3(4), 278–281. https://doi.org/10.46481/jnsps.2021.304

Issue

Section

Original Research