CFA Practice Question

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CFA Practice Question

One method to correct for heteroscedasticity is to compute robust standard errors. It involves:

A. Direct modifications to the t-statistics to account for conditional heteroskedasticity.
B. Generalizing the least squares regression to correct for conditional heteroskedasticity.
C. Direct modifications to the standard errors to account for conditional heteroskedasticity.
Correct Answer: C

Computing robust standard errors method corrects the standard errors of the linear regression model's estimated parameters to account for the conditional heteroskedasticity.

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