CFA Level 2: Heteroskedasticity Simplified

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CFA level 2: Quantitative Methods 2020

This channel is targeted at candidates for the CFA™ (Chartered Financial Analyst) Level 2 2020 exam.
The framework we are discussing about Serial correlation relates to Assumptions of Regression Model which is
1. Dependent and independent variables are assumed to have a linear relationship
2. Error Terms are assumed to be not serially correlated.
3. Errors Terms are constant, that is expected vale of error term is zero.

If the error terms are constant, it is called homoskedasticty. This is good,as we can make an assumption of the error terms. Hence, we would be able to predict dependent variable with certainity using our regression model.

If the error terms are not constant,it is called heteroskedasticty. This is bad, we won't be able to make an assumption of the error terms, hence we won't be able to predict future dependent variable with any certainity.

Other CFA Level 2 Quantitative Methods Topics of interest:

Assumptions of Linear Regression :    • CFA Level 2: Quantitative Methods: As...  
Multicollinearity :    • CFA Level 2: Multicollinearity  
Serial Correlation :    • CFA Level 2 : Serial correlation Simp...  
Quantitative Method Playlist:    • CFA Level 2 2020 :Quantitative Methods  


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