Variance Inflation Factor

AAA

DEFINITION of 'Variance Inflation Factor'

A measure of the amount of multicollinearity in a set of multiple regression variables. The presence of multicollinearity within the set of independent variables can cause a number of problems in the understanding the significance of individual independent variables in the regression model. Using variance inflation factors helps to identify multicollinearity issues so that the model can be adjusted.

INVESTOPEDIA EXPLAINS 'Variance Inflation Factor'

The variance inflation factor allows a quick measure of how much a variable is contributing to the standard error in the regression. When significant multicollinearity issues exist, the variance inflation factor will be very large for the variables involved. After these variables are identified, there are several approaches that can be used to eliminate or combine collinear variables, resolving the multicollinearity issue.

RELATED TERMS
  1. Variance

    The spread between numbers in a data set, measuring Variance ...
  2. Multicollinearity

    In statistics, the occurrence of several independent variables ...
  3. Correlation

    In the world of finance, a statistical measure of how two securities ...
  4. Variance Swap

    A type of volatility swap where the payout is linear to variance ...
  5. Analysis Of Variance - ANOVA

    A statistical analysis tool that separates the total variability ...
  6. Statistics

    A type of mathematical analysis involving the use of quantified ...
Related Articles
  1. Regression Basics For Business Analysis
    Investing Basics

    Regression Basics For Business Analysis

  2. Find The Highest Returns With The Sharpe ...
    Bonds & Fixed Income

    Find The Highest Returns With The Sharpe ...

  3. An Introduction To Value at Risk (VAR)
    Options & Futures

    An Introduction To Value at Risk (VAR)

  4. How To Convert Value At Risk To Different ...
    Active Trading Fundamentals

    How To Convert Value At Risk To Different ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center