medium · FRM Part 1 Quantitative Analysis
An analyst plots the residuals of a regression against an explanatory variable and notices a 'fan-shaped' pattern where the spread of residuals increases with X. What does this plot suggest?
- The regressor X is perfectly correlated with the error term.
- The residuals are positively autocorrelated.
- The model suffers from heteroskedasticity.
- There is a non-linear relationship that OLS is missing.
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