Sign up  |  Log in

Heteroskedacity and R squared

can we say that if we are trying to understand heteroskedacity one thing that may appear is that our R squared may result higher than it should be?

Master the Level II curriculum by creating custom quizzes in the SchweserPro™ QBank. Question difficulty automatically adapts to your ability level on a given topic, measuring your knowledge and keeping you motivated. Included in every Schweser Study Package.

I looked at the Wikipedia article on heteroscedasticity and it didn’t mention an effect on R2.

Therefore, I doubt that there’s an effect.

By the way, that is the sort of research you should strive to be able to do, rather than simply asking someone else for the answer.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

exactly because it didnt mention anything that i was wondering if it was possible that it did have an effect and maybe because I did my research and wasnt able to find an answer that I have asked the question

What i was wondering is that R squared= (SST- SSE)/SST

Given that SSE goes down due to heteroskedacity, the whole numerator goes up resulting in a bigger explanation of the whole variation in the model.

Maybe I am just overthinking. 

Sorry magician

No need to apologize.

Heteroscedasticity will affect SST and SSE.

However, if it’s not in the curriculum, I suggest that you don’t worry about it.  There’s enough there already.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/