Business Statistics

612 Business Statistics

Example 16.8

16.16.1 Autocorrelation

Autocorrelation occurs when the error terms of a regression model are correlated. We have already

discussed the assumptions of regression and we know that independence of error is one of the as-

sumptions of regression. The presence of autocorrelation in a time series data violates this assumption

of regression, hence, it affects the authenticity of the regression model. A first order autocorrelation

results from the degree of correlation between the error terms of adjacent time periods. Durbin–Wat-

son test is a test to identify the presence of autocorrelation in a time series data ...