Tutorial 4 (Week 5)

Multiple Regression
Tutorial assignment: Submit your answers for Q2 and Q3.

Objective: Testing and correcting for Heteroskedasticity, weighted least squares

and feasible generalised least squares

Q2. Have any of these assumptions been violated? Graph the residuals against the
size of living area and comment on any observable pattern.

Answer: There are some of evidence from heteroscedasticity with the residuals that is larger in small
living area houses than those with larger living areas. We could accept the data between -0.4 to 0.4,
which others numbers that in this range, the living area houses will be rejected.
Q3. Test for heteroskedasticity. What does this mean for the results we obtained above in
(1)?

On the Equation screen,

View> Residual Diagnostics > Heteroskedasticity Tests, White (No Crossed Terms)

Heteroskedasticity Test: White

F-statistic 24.79905 Prob. F(6,1660) 0.0000

Obs*R-squared 137.1301 Prob. Chi-Square(6) 0.0000
Scaled explained SS 304.2514 Prob. Chi-Square(6) 0.0000

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 09/05/19 Time: 12:53 Sample: 1
6660 IF YEAR=2002
Included observations: 1667

Variable Coefficient Std. Error t-Statistic Prob.

C 0.018727 0.005263 3.558154 0.0004

SFLA^2 6.05E-09 1.43E-09 4.231771 0.0000
BEDS^2 -0.001215 0.000500 -2.432303 0.0151
BATHS^2 0.001307 0.001239 1.054895 0.2916
STORIES^2 -0.004238 0.001686 -2.514071 0.0120
VACANT^2 -0.006322 0.003890 -1.625343 0.1043
AGE^2 1.05E-05 1.05E-06 10.03788 0.0000

R-squared 0.082262 Mean dependent var 0.034025

Adjusted R-squared 0.078944 S.D. dependent var 0.071997
S.E. of regression 0.069097 Akaike info criterion -2.502429
Sum squared resid 7.925432 Schwarz criterion -2.479674
Log likelihood 2092.774 Hannan-Quinn criter. -2.493997
F-statistic 24.79905 Durbin-Watson stat 1.890188
Prob(F-statistic) 0.000000

First,
H0: Homoskedastic residuals
H1: Heteroskedatic residuals
When probability value < 0.05 (5% level), then reject the null hypothesis.

Second,
At the 5% level of significance hetoroskedasticity is present in the residual model, which
means one of our assumptions of our linear regression model is violated. Therefore, in this
condition, coefficients are still unbiased but standard errors are wrong. This indicates that any
t-tests, F-tests may be misleading. As a conclusion, it means it is no longer BLUE, which the
estimators are still unbiased but not the best.