Regression Analysis and Assumption Violations
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Heteroskedasticity
There are two types, Conditional and Unconditional. The type focused on in evaluating model validity is Conditional Heteroskedasticity.
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Conditional = the error terms change in a systematic manner that is correlated with the values of the independent variables.
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Look up a graph depicting this problem.
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The Breusch-Pagan test will test for Conditional Heteroskedasticity.
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When this problem is present, the model’s t-scores will be artificially high, indicating a false significance of relationships.
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