Comparison of regression models under multi-collinearity

Abstract

Multicollinearity is a major problem in linear regression analysis and several methods exists in the literature to deal with the same. Ridge regression is one of the most popular methods to overcome the problem followed by Generalized Ridge Regression (GRR) and Directed Ridge Regression (DRR). However, there exist many computational issues in using the above methods. Partial Ridge Regression (PRR) method is a computationally viable approach by selectively adjusting the ridge constants using the cutoff criteria. In this paper, the performance of the Partial Ridge Regression approach has been evaluated through a simulation study based on the mean squared error (MSE) criterion. Comparing with other methods of ridge regression, the study indicates that the Partial ridge regression by cutoff criteria performs better than the existing methods.