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      Question

      If an OLS regression model violates the assumption of

      Homoscedasticity (i.e., it exhibits Heteroscedasticity), which of the following properties of the OLS estimator ( Λ†Ξ² ) remains valid?
      A Efficiency (Minimum Variance) Correct Answer Incorrect Answer
      B Best Linear Unbiased Estimator (BLUE) Correct Answer Incorrect Answer
      C Unbiasedness Correct Answer Incorrect Answer
      D Validity of standard t-test Correct Answer Incorrect Answer

      Solution

      Heteroscedasticity does not cause the OLS estimators to be biased or inconsistent; the expected value E (Λ†Ξ² }) still equals Λ†Ξ². However, the estimators are no longer "Efficient" (they don't have the minimum variance), meaning they are no longer BLUE. Furthermore, the standard errors are biased, rendering usual t-tests and F-tests unreliable.

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