Business Applications of Multiple Regression

182 BUSINESS APPLICATIONS OF MULTIPLE REGRESSION

or logs. These transformations are particularly effective when the data

show high variability on one side of the residual plot and low variabil-

ity on the other. However, a nonlinear transformation introduces all the

theoretical interpretation concerns raised earlier.

A third approach is to simply realize that heteroscedasticity exists in

the multiple regression model but to otherwise ignore it in the calcula-

tion of the model. Given the minor impact of heteroscedasticity, this is

the approach often taken by researchers.

Summary

In this chapter we looked at model building, incorporating ...