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The disturbance term in linear regression incorporates the influences of all of the regressors listed in...

The disturbance term in linear regression incorporates the influences of all of the regressors listed in the linear regression equation. True or false?

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Answer #1

It shall be noted that the disturbance term in linear regression represents the difference between the actual value and the predicted value of the dependent variable. It is also referred to as error-in-variables or measurement error. Such error exist due to factors like un-predicted randomness , absence of deterministic relationship or measurement error in the variables.

This disturbance term is often considered to represent the influence of those independent variables (regressors) that have not been included in fitting a linear regression model.

Hence, to say that disturbance term incorporates influence of regressors listed in linear regression equation is not correct.

Hence, the correct answer is false.

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