- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Multiple Regression
- Subject 10. Heteroskedasticity

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**CFA Practice Question**

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

B. Generalizing the least squares regression to correct for conditional heteroskedasticity.

C. Direct modifications to the standard errors to account for conditional heteroskedasticity.

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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