Econometrica: Jul 1966, Volume 34, Issue 3

Factor Analysis and Regression<552:FAAR>2.0.CO;2-C
p. 552-562

John T. Scott, Jr.

This paper derives a stochastic linear equation from factor analysis called factor analysis regression which is suggested as an alternative to classical least squares regression whenever least squares estimation is questionable or breaks down because of errors in the variables or multicollinearity. Statistical tests for the factor analysis regression are also suggested and an empirical example comparing factor-analysis regression with least squares is shown.

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