The following model was estimated:Yi Bo B₁x₁ + €₁TIt is assumed that the variance of the error term takesthe following form:E(e)² = ²x²Explain the form which heteroskedasticity takes in this case, andshow how the equation can be transformed to remedy theproblem of heteroskedasticity.

Heteroskedasticity is a situation in the regression analysis where the residuals don not have the…

Answered: The following model was estimated: Yi…

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter7: Distance And Approximation

Section7.3: Least Squares Approximation

Problem 31EQ

See similar textbooks

Similar questions

Consider a capital market with only two risky assets A and B. Their standard deviations are 1 and 2, respectively. There is no risk-free asset. When the correlation coefficient ρAB = 0, construct a portfolio, whose variance is strictly less than 1. [Hint: you may want to try the portfolio that puts more weight on the security with the lower standard deviation.]
Show what correction (using the generalized least squares method) we should use if the form of heteroskedasticity was the following, show mathematically For both a) and b)
Suppose that index model for Stocks A and B is estimated from excess returns with the following results : Ra 0.04 +0.6Rm+ea , Rb = - 0.04 + 1.3Rm + eb Risk on the market is 30% , R-squared of A is 30%R - squared of B is 40% , security A residual variance is
The records of a casualty insurance company show that, in the past, its clients have had a mean of 1.9 auto accidents per day with a variance of 0.0036. The actuaries of the company claim that the variance of thenumber of accidents per day is no longer equal to 0.0036. Suppose that we want to carry out a hypothesis test to see if there is support for the actuaries' claim. State the null hypothesis H0 and the alternative hypothesis H1 that we would use for this test.
The records of a casualty insurance company show that, in the past, its clients have had a mean of 1.7 auto accidents per day with a variance of 0.0025 . The actuaries of the company claim that the variance of the number of accidents per day is no longer equal to 0.0025. Suppose that we want to carry out a hypothesis test to see if there is support for the actuaries' claim. State the null hypothesis H0 and the alternative hypothesis H1 that we would use for this test. H0 : ? H1 : ?
If X is a random variable with expectation µ and variance cµ2 , where c is a constant. Find a variance stabilizing transformation of X.
A possible important environmental determinant of lung function in children is the amount of cigarette smoking in the home. Suppose this question is studied by selecting two groups: Group 1 consists of 23 nonsmoking children 5-9 years of age, both of whose parents smoke, who have a mean forced expiratory volume (FEV) of 2.1 L and a standard deviation of 0.7 L; group 2 consists of 20 nonsmoking children of comparable age, neither of whose parents smoke, who have a mean FEV of 2.3 L and a standard deviation of 0.4 L.*8.31 What are the appropriate null and alternative hypotheses to compare the means of the two groups? *8.32 What is the appropriate test procedure for the hypotheses in Problem 8.31? *8.33 Carry out the test in Problem 8.32 using the criticalvalue method. *8.34 Provide a 95% CI for the true mean difference in FEV between 5- to 9-year-old children whose parents smoke and comparable children whose parents do not smoke. *8.35 Assuming this is regarded as a pilot study, how many…
In the simple linear regression model , the Gauss Markov ( classical ) assumptions guarantee that the OLS estimator of the unknown parameters is BLUE. Among those assumptions , in order to have consistency of the OLS estimator we need ( this is a question on the necessary condition ): Question 4Select one: a. we need that the errors are not correlated with each others and that they have zero mean b. we need that the errors are homoscedastic ( all have the same variance) c. we need that the residuals are not correlated with the explanatory variables and that the residuals have zero mean d. we need that the errors have zero mean and that they are not correlated with the regressors ( no endogeneity) e. we need that the errors are homoscedastic ( all have the same variance) and not correlated with each others ( no serial correlation)
Suppose the table below displays the estimation results from the Logit model Regressor Coefficient (standard error) (log)Income(X1) 0.48 (0.12) Age(X2) 0.03 (0.01) -0.008 (0.02) constant 8.07 (1.16) where the heteroskedasticity-robust standard errors are reported along with the coefficient estimates. How do you interpret the coefficient on log income? Is it significantly different from zero? What is the log odds-ratio for an individual with log income equal to 10 and age equal to 40? Explain what it means.
In terms of the model parameters, state the null hypothesis that, after controlling for sales and roe, ros has no effect on CEO salary. State the alternative that better stock market performance increases a CEO’s salary.

Recommended textbooks for you

Linear Algebra: A Modern Introduction

Algebra

ISBN:

9781285463247

Author:

David Poole

Publisher:

Cengage Learning

Linear Algebra: A Modern Introduction

Algebra

ISBN:

9781285463247

Author:

David Poole

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS

The following model was estimated: Yi Bo Bixi + €₁ It is assumed that the variance of the error term takes the following form: E(e)² = ²x² Explain the form which heteroskedasticity takes in this case, and show how the equation can be transformed to remedy the problem of heteroskedasticity.