Use the data in RDCHEM.RAW to further examine the effects of outliers on OLS estimates and to see how LAD is less sensitive to outliers. The model is
rdintens = β0+ β1sales + β2sales2 + β3profmarg + u,
where you should first change sales to be in billions of dollars to make the estimates easier to interpret.
(i) Estimate the above equation by OLS, both with and without the firm having annual sales of almost $40 billion. Discuss any notable differences in the estimated coefficients.
(ii) Estimate the same equation by LAD, again with and without the largest firm. Discuss any important differences in estimated coefficients.
(iii) Based on your findings in (i) and (ii), would you say OLS or LAD is more resilient to outliers?
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