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Handling Critical Multicollinearity Using Parametric Approach

Author

Listed:
  • Obubu Maxwell*

    (Department of Statistics, Nnamdi Azikiwe University, Awka, Nigeria)

  • George Amaeze Osuji

    (Department of Statistics, Nnamdi Azikiwe University, Awka, Nigeria)

  • Ibeakuzie Precious Onyedikachi

    (Department of Statistics, Nnamdi Azikiwe University, Awka, Nigeria)

  • Chinelo Ijeoma Obi-Okpala

    (Department of Statistics, Nnamdi Azikiwe University, Awka, Nigeria)

  • Ikediuwa Udoka Chinedu

    (Department of Statistics, Nnamdi Azikiwe University, Awka, Nigeria)

  • Okpala Ikenna Frank

    (Department of Statistics, Nnamdi Azikiwe University, Awka, Nigeria)

Abstract

In regression analysis, it is relatively necessary to have a correlation between the response and explanatory variables, but having correlations amongst explanatory variables is something undesired. This paper focuses on five methodologies for handling critical multicollinearity, they include: Partial Least Square Regression (PLSR), Ridge Regression (RR), Ordinary Least Square Regression (OLS), Least Absolute Shrinkage and Selector Operator (LASSO) Regression, and the Principal Component Analysis (PCA). Monte Carlo Simulations comparing the methods was carried out with the sample size greater than or equal to the levels (n>p) considered in most cases, the Average Mean Square Error (AMSE) and Akaike Information Criterion (AIC) values were computed. The result shows that PCR is the most superior and more efficient in handling critical multicollinearity problems, having the lowest AMSE and AIC values for all the sample sizes and different levels considered.

Suggested Citation

  • Obubu Maxwell* & George Amaeze Osuji & Ibeakuzie Precious Onyedikachi & Chinelo Ijeoma Obi-Okpala & Ikediuwa Udoka Chinedu & Okpala Ikenna Frank, 2019. "Handling Critical Multicollinearity Using Parametric Approach," Academic Journal of Applied Mathematical Sciences, Academic Research Publishing Group, vol. 5(11), pages 150-163, 11-2019.
    • Handle: RePEc:arp:ajoams:2019:p:150-163
    DOI: 10.32861/ajams.511.150.163
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