1.

coefficient of determination (R2) : The fraction of total variation in the dependent variable
explained by the regression equation

2. critical value of t : The value that the t-statistic must exceed in order to reject the hypothesis
that b = 0.

3. cross-sectional : A data set in which the data on the dependent and explanatory variables
are collected from many different firms or industries at a given point in time.

4. degrees of freedom : The number of observations in the sample minus the number of
parameters being estimated by the regression analysis (n - k).

5. dependent variable : The variable whose variation is to be explained

6. estimates : The estimated values of parameters obtained by substituting sample data into
estimators.

7. estimators : The formulas by which the estimates of parameters are computed.

8. explanatory variables : The variables that are thought to cause the dependent variable to
take on different values.

9. fitted or predicted value : The predicted value of Y ( Denoted Yhat) associated with a
particular value of X, which is obtained by substituting that value of X into the sample
regression equation.

10. F-statistic : A statistic used to test whether the overall regression equation is statistically
significant.

11. hypothesis testing : A statistical technique for making a probabilistic statement about the
true value of a parameter

12. intercept parameter : The parameter that gives the value of Y at the point where the
regression line crosses the Y-axis.

13. level of confidence : The probability of correctly failing to reject the true hypothesis that b =
0; equals one minus the level of significance.

14. level of significance : The probability of finding the parameter to be statistically significant
when in fact it is not.

15. log-linear regression model : A nonlinear regression model of the form Y = aXb . Zc

16. method of least-squares : A method of estimating the parameters of a linear regression

equation by finding the line that minimizes the sum of the squared distances from each
sample data point to the sample regression line.

17. multiple regression models : Regression models that use more than one explanatory
variable to explain the variation in the dependent variable.

18. parameter estimation : The process of finding estimates of the numerical values of the
parameters of an equation.

19. parameters : The coefficients in an equation that determine the exact mathematical relation
among the variables.
20. population regression line : The equation or line representing the true (or actual) underlying
relation between the dependent variable and the explanatory variable(s).

21. p-value : The exact level of significance for a test statistic, which is the probability of finding
significance when none exists.

22. quadratic regression model : A nonlinear regression model of the form Y = a + bX + cX

23. random error term : An unobservable term added to a regression model to capture the
effects of all the minor, unpredictable factors that affect Y but cannot reasonably be
included as explanatory variables.

24. regression analysis : A statistical technique for estimating the parameters of an equation
and testing for statistical significance.

25. relative frequency distribution : The distribution (and relative frequency) of values ˆ b can
take because observations on Y and X come from a random sample.

26. residual : The difference between the actual value of Y and the fitted (or predicted) value of
Y: Yi

27. sample regression line : The line that best fits the scatter of data points in the sample and
provides an estimate of the population regression line.

28. scatter diagram : A graph of the data points in a sample.

29. slope parameter : The slope of the regression line, b = DY/DX, or the change in Y associated
with a one-unit change in X.

30. statistically significant : There is sufficient evidence from the sample to indicate that the
true value of the coefficient is not 0.

31. time-series : A data set in which the data for the dependent and explanatory variables are
collected over time for a specific firm.

32. t-ratio : The ratio of an estimated regression parameter divided by the standard error of the
estimate.

33. true (or actual) relation : The true or actual underlying relation between Y and X that is
unknown to the researcher but is to be discovered by analysing the sample data.

34. t-statistic : The numerical value of the t-ratio.

35. t-test : A statistical test used to test the hypothesis that the true value of a parameter is
equal to 0 (b = 0).

36. Type I error : Error in which a parameter estimate is found to be statistically significant when
it is not.

37. unbiased estimator : An estimator that produces estimates of a parameter that are on
average equal to the true value of the parameter.