Regression Assumptions

muthuthere
Posts: 7
Joined: Tue Sep 29, 2015 8:47 am

Regression Assumptions

Postby muthuthere » Tue Dec 29, 2015 12:23 pm

What is the consequences of my predicted values if i am not following the regression assumptions
1. My residuals is not normal
2. Hetrosceadicity exists or my residuals do not have constant variance (whether my t statistics will affect because of Hetrosceadicity).

It is just to understand.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Regression Assumptions

Postby edupristine » Tue Jan 05, 2016 1:22 pm

If Heteroskedasticity is present, it means your error term doesn't have constant variance. So, the assumption we made for finding out coefficient is wrong. So, for that we need to correct Heteroskedasticity. When we will do it, the process will not change the coefficients but will affect standard errors that in turn will affect t stat and that will affect p-value which can make a significant variable to insignificant.


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