many way of serial correlation checking

7/24/2019 many way of serial correlation checking

1/5

Residuals from our time series regressions appear to be correlated with their own

lagged values (they display serial correlation). Serial correlation is a common occurrence in time series data because the data is

ordered (over time); it is therefore not surprising that neighboring error terms turn out

to be correlated.

Serial correlation violates the standard assumption of regression theory that error

terms are uncorrelated.

If untreated, serial correlation leads to a number of issues:

Reported standard errors and t-statistics are invalid (even asymptotically).

Coefficients may be biased, though not necessarily inconsistent (if data is weakly

dependent).

In the presence of lagged dependent variables, OLS estimates are biased and

inconsistent

Run a regression and go to views of resulted window.actual fitted residualactual fitted

residual graph. Or views , actual fitted residual ---- residual graph

Here residual are running from positive to negative

values, a evidence of serial correlation.


2/5

Run a regression and go to views, residual diagnostic and then Correlogram-Q-Statistic.an

option will aper and ask about lags , keep default and ok

From here u can conclude like this

If there is no serial correlation the AC and PAC at all

lags should be near zero and all Q-statistics should

be insignificant.

Here u can conclude no autocorrelation and one

thing more if you dark dots are within the dotted

line you can say no auto correlation.


3/5

To test the hypothesis of no serial correlation, compare the reported DW statisticto a table of

See my blogcritical values. Notice that EViews does not compute p-values for the DW statistic.

for table of critical values.saeedmeo.blogspot.com

Run regression and see Durbin Watson values like following DW.

Compare DW values with Savin

table.savin is author who introduce

Durbin Watson critical value table.


4/5

Testing for Serial Correlation with the help of Breusch-

Godfrey Test

Open equation or run regression

Go to views of resulted window

Go to diagnostic

Then go to serial correlation LM TEST

The Lag Specification box opens up. Here you need to specify the highest order

of serial correlation you would like to test. If testing for first order serial

correlation, specify lags=1.


5/5

Results are shown here.

The top panel reports the test statistics in two versions:

the F-statistic and the Chi-squared statistics (either one isfine). The associated p-values are also shown next to each

statistic.

The bottom panel provides additional information of the

auxiliary regression that is carried out to create the test

statistic.

Since we are testing for first order serial correlation, there

is only one residual lag in the auxiliary regression.

The null hypothesis of no serial correlation is easilyACCEPTED, verifying our previous findings

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many way of serial correlation checking