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Exercise for Exam

The document presents an exercise related to heteroskedasticity testing in regression analysis, specifically using the White test with provided statistical results. It outlines the null and alternative hypotheses, interprets the test results indicating no evidence of heteroskedasticity, and discusses potential consequences and solutions if heteroskedasticity were present. The suggested solutions include using robust standard errors, transforming data, or applying weighted least squares.

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0% found this document useful (0 votes)
9 views

Exercise for Exam

The document presents an exercise related to heteroskedasticity testing in regression analysis, specifically using the White test with provided statistical results. It outlines the null and alternative hypotheses, interprets the test results indicating no evidence of heteroskedasticity, and discusses potential consequences and solutions if heteroskedasticity were present. The suggested solutions include using robust standard errors, transforming data, or applying weighted least squares.

Uploaded by

contactminteasse
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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1/25/25, 11:46 PM EXERCISE FOR EXAM

EXERCISE FOR EXAM

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Based on the provided image, here's an exercise question related to


heteroskedasticity testing:

Question:
You are conducting a regression analysis and suspect the presence of
heteroskedasticity. You perform a White test with 6 auxiliary regressors and
obtain the following results:
F-statistic: 1.282174
Prob. F(6,73): 0.2762
Obs\*R-squared: 7.626970
Prob. Chi-Square(6): 0.2667
Scaled explained SS: 5.246713
Prob. Chi-Square(6): 0.5126

1. State the null and alternative hypotheses of the White test.


2. Interpret the results of the test. Can you conclude that heteroskedasticity is
present?
3. If heteroskedasticity is present, what are the potential consequences for your
regression analysis?
4. How might you address heteroskedasticity if it is indeed present?

Answer:
1. Null Hypothesis (H0): There is no heteroskedasticity.

Alternative Hypothesis (H1): Heteroskedasticity is present.


2. Based on the results, we fail to reject the null hypothesis. The p-values for both the
F-statistic and the Chi-Square statistics are greater than the conventional
significance level of 0.05. This suggests that there is not enough evidence to
conclude that heteroskedasticity is present.
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1/25/25, 11:46 PM EXERCISE FOR EXAM

3. If heteroskedasticity were present, it would violate one of the key assumptions of


ordinary least squares (OLS) regression. This can lead to:
Inefficient estimates: The OLS estimators are no longer the best linear
unbiased estimators (BLUE).
Biased standard errors: The standard errors of the coefficients become
biased, leading to incorrect inferences about the statistical significance of the
coefficients.
Unreliable hypothesis tests: The t-tests and F-tests may produce unreliable
results.

4. To address heteroskedasticity, you could consider:


Using robust standard errors: These standard errors are adjusted to account
for the presence of heteroskedasticity and provide more reliable inference.
Transforming the data: Applying a transformation to the dependent or
independent variables can sometimes mitigate heteroskedasticity.
Weighted least squares (WLS): This technique assigns weights to the
observations based on their estimated variances, giving more weight to
observations with lower variance.

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