If the residuals of a regression on a large sample are found to be heteroscedastic which of the following might be a likely consequence?
(I) The coefficient estimates are biased
(ii) The standard error estimates for the slope coefficients may be too small
(iii) Statistical inferences may be wrong
A) (i) only
B) (ii) and (iii) only
C) (i), (ii) and (iii)
D) (i) and (ii) only

Question

Quizplus · Accepted Answer

Heteroscedasticity does not bias the coefficient estimates themselves, but it can lead to incorrect standard error estimates, making statistical inferences unreliable. This is because the usual estimation of standard errors assumes homoscedasticity (constant variance of errors). When this assumption is violated, the standard errors can be underestimated or overestimated, leading to incorrect conclusions about the significance of the coefficients.

If the Residuals of a Regression on a Large Sample