Definition of Durbin-Watson Statistic

Definition: The Durbin-Watson test is a test for first-order serial correlation in the residuals of a time series regression. A value of 2.0 for the Durbin-Watson statistic indicates that there is no serial correlation.

This result is biased toward the finding that there is no serial correlation if lagged values of the regressors are in the regression. Formally, the statistic is:

d=(sum from t=2 to t=T of: (e_t-e_t-1)²/(sum from t=1 to t=T of: e_t²)
where the series of e_t are the residuals from a regression.

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