Use the test below with a model for heteroskedasticity, and answer the question.

Question

Use the test below with a model for heteroskedasticity, and answer the question.

Interpret the test for heteroskedasticity, and state what actions you should take, if any, regarding the results.
df Number of obg= 3858 F1, 3856) 326.40 Prob F R-squared Adj R-squared 0.0778 Root MSE Source MS 1 7.1182e+13 Residual 8.4093e+14 3856 2.1808e+11 Model I 7.1182e+13 0.0000 - 0.0780 Total I 9.1211e+14 3857 2.3648e+11 - 4.7e+05 sold _price Coef. Std. Err [95% Conf. Interval] days_on mat890.0965 49.2677818.07 0.000 cons 401887.2 9503.364 42.29 0.000 793.5031 383255.1 986.6899 420519.3 . hettest Breusch-Pagan/ Cook-neisberg test for heteroskedasticity Ho: Constant variance Variables: fitted values of sold_price chi2 (1) 393.72 Prob > chi2 = 0.0000

Explanation / Answer

Here the Breusch pagan test is used to test for the heteroskedasticity.

A small chi-square value (along with an associated large p-value) indicates the null hypothesis is true (i.e. that the variances are all equal).

Here in the given valuation, p-value for this test is very small almost equal to 0, therefore the null hypothesis will be rejected and therefore there is heteroskedasticity in the model

As there is only one indepepdent variable here, heteroskedasticity could only be tackled by method of transformations. you could use the mean value of residuals for all observations in test data.

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