Regression Model

Description:

• An equation that describes how $y$ is related to $x$ and an error term $ϵ$

Testing for significance:

• Coefficient of determination ($r^2$) is a measure of the goodness of fit of the estimated regression equation.
• However, even with a large value of $r^2$, the estimated regression equation should not be used until further analysis of the appropriateness of the assumed model has been conducted.
• An important step in determining whether the assumed model is appropriate involves testing for the significance of the relationship.
• The tests of significance in regression analysis are based on the following assumptions about the error term $ϵ$