Question #31
Reading: Reading 1 Multiple Regression
PDF File: Reading 1 Multiple Regression.pdf
Page: 13
Status: Unattempted
Correct Answer: B
Question
Which of the following statements regarding heteroskedasticity is least accurate?
Answer Choices:
A. Heteroskedasticity may occur in cross-sectional or time-series analyses
B. The assumption of linear regression is that the residuals are heteroskedastic
Explanation
The assumption of regression is that the residuals are homoskedastic (i.e., the residuals
are drawn from the same distribution).
(Module 1.3, LOS 1.h)
Werner Baltz, CFA, has regressed 30 years of data to forecast future sales for National Motor
Company based on the percent change in gross domestic product (GDP) and the change in
retail price of a U.S. gallon of fuel. The results are presented below.
Predictor
Coefficient
Standard Error of
the Coefficient
Intercept
78
13.710
Δ GDP
30.22
12.120
Δ $ Fuel
−412.39
183.981
Analysis of Variance Table (ANOVA)
Source
Degrees of Freedom
Sum of Squares
Regression
291.30
Error
27
132.12
Total
29
423.42