week11-12

week11-12 - ECON346 (Econometrics) Week11-12- 1...

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Unformatted text preview: ECON346 (Econometrics) Week11-12- 1 Heteroskedasticity Under the classical assumption the OLS error has Homoskedasticity, which implies constant variance: Var( i ) = 2 Residuals with constant variance Ut-3-2.5-2-1.5-1-0.5 0.5 1 1.5 2 2.5 0.5 1 1.5 2 2.5 3 3.5 Ut For Heteroskedasticity, the variance of the error term depends on the observations: Var( i ) = 2 i = 2 Z i 2 Residuals with different variance Et_hetero-8-6-4-2 2 4 6 0.5 1 1.5 2 2.5 3 3.5 Et_hetero ECON346 (Econometrics) Week11-12- 2 Example of heteroskedasticity: the variance of consumption level for low income and high income family, the aggregated wage between small state and larger state, the commission rates between individual investors and institutional investors. Example from Textbook: 10.5. Petroleum consumption Residual from regression model (10.24) with REG variable Epsilon-600-400-200 200 400 600 800 1000 1200 1400 5000 10000 15000 20000 Heteroskedasticity in time series 1. Significant amount of changing in the dependent variables. Significant amount of changing in the dependent variables....
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This note was uploaded on 05/12/2011 for the course FIN 300 taught by Professor Wang during the Spring '11 term at UChicago.

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week11-12 - ECON346 (Econometrics) Week11-12- 1...

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