# Data Analysis About Diamond Prices

Topics: Dummy variable Pages: 55 (17600 words) Published: January 6, 2011
ECONOMETRIC MODEL FOR DIAMOND PRICES
This assignment is about to make an econometric model for diamond prices. I already have been studied the procedure to make an econometric model. I will make an econometric model and collect data to do estimation and later will check its BLUEness by apply diagnostic check. Hope I will come up with a BLUE model. As we know diamond prices depends on the size, shape, color and clarity of the diamond. So I can write it as follow: Diamond prices = ʄ (size, shape, color, clarity)

Size is in carats and it’s a quantitative variable but shape, color and clarity all are qualitative variables. All these qualitative variables have different groups in them, so to make an econometric model we will make dummies of all those groups of qualitative variables. Diamond shapes => round, marquise, oval, emerald cut, pear, princess/radiant, trillion and heart. Color scale => D, E, F, G, H, I, J, K, L and M.

Diamond clarity => VVS1, VVS2, VS1, VS2, SI1, SI2.
Now I will make dummy variable of these groups.
Diamond prices = β0+ β1SZ+ β2DR+ β3DO+ β4DE+ β5DP+ β6DPR+ β7DT+ β8DH+ β9Dd+ β10De+ β11Df+ β12Dg+ β13Dh+ β14Dj+ β15Dk+ β16Dl+ β17Dm+ β18DIF+ β19DVVS1+ β20DVVS2+ β21DVS1+ β22DVS2+ β23DSI1+ β24DSI2+ β25DI1+ β26DI2 Now I will make interaction dummy variable and add them up too. Diamond prices = β0+ β1SZ+ β2DR+ β3DO+ β4DE+ β5DP+ β6DPR+ β7DT+ β8DH+ β9Dd+ β10De+ β11Df+ β12Dg+ β13Dh+ β14Dj+ β15Dk+ β16Dl+ β17Dm+ β18DIF+ β19DVVS1+ β20DVVS2+ β21DVS1+ β22DVS2+ β23DSI1+ β24DSI2+ β25DI1+ β26DI2+ β27(DR*C)+ β28(DO*C)+ β29(DE*C)+ β30(DP*C)+ β31(DPR*C)+ β32(DT*C)+ β33(DH*C)+ β34(Dd*C)+ β35(De*C)+ β36(Df*C)+ β37(Dg*C)+ β38(Dh*C)+ β39(Dj*C)+ β40(Dk*C)+ β41(Dl*C)+ β42(Dm*C)+ β43(DIF*C)+ β44(DVVS1*C)+ β45(DVVS2*C)+ β46(DVS1*C)+ β47(DVS2*C)+ β48(DSI1*C)+ β49(DSI2*C)+ β50(DI1*C)+ β51(DI2*C)

Now I will run regression test and find out the general model. Variable| Coefficient| Std. Error| t-Statistic| Prob. | C| 314876.7| 475015.9| 0.662876| 0.5106|
SZ| -73125.75| 122562.2| -0.596642| 0.5536|
R| 70581.34| 72172.23| 0.977957| 0.3331|
O| 126002.2| 75809.56| 1.662088| 0.1032|
E| 185463.2| 68347.26| 2.713543| 0.0093|
P| 88394.07| 87753.10| 1.007304| 0.3189|
PR| 93018.37| 69981.53| 1.329185| 0.1902|
T| 111201.5| 76736.57| 1.449133| 0.1539|
H| 203379.4| 98665.71| 2.061297| 0.0448|
D| -482676.5| 475138.1| -1.015866| 0.3149|
E| -19068.47| 139320.7| -0.136867| 0.8917|
F| -10394.71| 104804.7| -0.099182| 0.9214|
G| -29502.45| 142163.2| -0.207525| 0.8365|
H| 16811.64| 70973.99| 0.236870| 0.8138|
J| 100135.7| 138288.5| 0.724107| 0.4726|
K| -93666.69| 137329.4| -0.682058| 0.4985|
L| 142475.5| 131984.5| 1.079487| 0.2859|
M| -368109.9| 466567.4| -0.788975| 0.4341|
IF| -112919.1| 74793.67| -1.509742| 0.1378|
VVS1| -583392.7| 461899.8| -1.263029| 0.2128|
VVS2| -343117.8| 423914.3| -0.809404| 0.4224|
VS1| -468609.3| 461174.6| -1.016121| 0.3148|
VS2| -478024.8| 476422.4| -1.003363| 0.3208|
SI1| -494546.7| 458871.9| -1.077745| 0.2866|
SI2| -422974.6| 470336.5| -0.899302| 0.3731|
I1| -409873.6| 421275.1| -0.972936| 0.3356|
I2| -521568.3| 468412.6| -1.113480| 0.2712|
SZ*R| -6374.484| 22213.84| -0.286960| 0.7754|
SZ*O| -39557.64| 25092.82| -1.576452| 0.1216|
SZ*E| -73791.02| 19795.19| -3.727724| 0.0005|
SZ*P| -21179.67| 27425.18| -0.772271| 0.4438|
SZ*PR| -36455.94| 20969.41| -1.738530| 0.0887|
SZ*T| -29931.26| 21323.21| -1.403694| 0.1670|
SZ*H| -64275.03| 28445.55| -2.259581| 0.0285|
SZ*D| 132343.3| 126888.6| 1.042989| 0.3023|
SZ*E| 6895.489| 53986.44| 0.127726| 0.8989|
SZ*F| 7609.503| 52250.44| 0.145635| 0.8848|
SZ*G| 364.5018| 49412.74| 0.007377| 0.9941|
SZ*H| -18103.43| 21151.21| -0.855905| 0.3964|
SZ*J| -44358.33| 47969.86| -0.924713| 0.3598|
SZ*K| 27792.39...