Homoskedasticity & Heteroskedasticity

swarnendupathak
Finance Junkie
Posts: 119
Joined: Mon Sep 17, 2012 11:06 am

Homoskedasticity & Heteroskedasticity

Postby swarnendupathak » Thu Sep 20, 2012 4:07 pm

Hi,
Why unconditional Heteroskedasticity do not have or impact the statistica decission significantly?? As here also error terms have different variances with observations unlike homoskedasticity.
Please explain.

Regards
Swarnendu

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Homoskedasticity & Heteroskedasticity

Postby content.pristine » Fri Sep 21, 2012 12:35 pm

Hi Swarnendu,

Heteroskedasticitiy means the variance of the error term changes. This is not allowed for linear regression. Now, there are 2 types: conditional and unconditional. Conditional means that the variance of the error term depends on the level of the independent variable. This is not at all acceptable. Unconditional heteroskedasticity means that the variance is not constant but at least, it does not depend on the level of the independent variable. For this reason, this is "acceptable"..

Hope this helps..
8-)


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