Watson Test for Serial Correlation

Whenever researchers perform a regression analysis using data collected over time, they should conduct the Durbin-Watson Test. Most statistical software packages have it as a standard subroutine and it can be chosen for inclusion in [Pg.109]

More often than not, serial correlation will involve positive correlation, where each e, value is directly correlated to the e, i value. In this case, the Durbin-Watson test is a one-sided test, and the population serial correlation component—under the alternative hypothesis— is P 0. The Durbin-Watson formula for 1 lag is [Pg.109]

For other lags, the change in the formula is straightforward. For example, a 3 lag Durbin-Watson calculation is [Pg.109]

If P 0, then e, = e, i + dt. The Durbin-Watson test can be evaluated using the six-step procedure [Pg.109]

Step 1 Specify the test hypothesis (generally upper-tail or positive correlation). [Pg.109]

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