The following OLS assumption is most likely violated by omitted variables bias: A)E(u_i X_i)= 0 B)(X_i, Y_i)i=1,..., n are i.i.d draws from their joint distribution C)there are no outliers for X_i, u_i D)there is heteroskedasticity

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Quizplus · Accepted Answer

Omitted variables bias occurs when a relevant variable is left out of the regression model, leading to biased and inconsistent coefficient estimates. This violates the OLS assumption of E(u|X) = 0, where u is the error term and X includes all relevant explanatory variables. The other options listed are unrelated to omitted variables bias.

The Following OLS Assumption Is Most Likely Violated by Omitted