ECONOMETRICS II

Heteroscedasticity

Hazırlayan

Prof. Dr. Erkan ÖZATA

Ekonometri II

LM Tests (Lagrange Multiplier Tests)

Yi  1   2 X i 2  3 X i 3  ................   k X ik  ui (Main Regression Model)

There are 3 different structures in which error term variance is created.
1-  i2  1  2 Zi 2  ..................   p Zip Breusch Pagan Test
2
The square of the residuals (ei ) is used instead of the variance.
2-  i  1  2 Zi 2  ..................   p Zip Glejser Test
Instead of standart error absolute value of residuals ei is used.
3- ln  i2  1  2 Zi 2  ..................   p Zip Harvey Godfrey Test
ln ei2 is used instead of ln  i2
The Park test is a special case of the Harvey Godfrey test.
Ekonometri II

LM Tests (Lagrange Multiplier Tests)

Hypotheses Used
H 0 :  2   3  ...   p  0 (Homoscadesticity)
H1 :  2   3  ...   p  0 (Heteroscedasticity)

Test statistics : LM  n  R 2j  (2p 1)

R 2j : Coefficient of determination for the auxiliary regression
n: Number of observations
Decision Rule : LM  (2p1) Reject H 0
 LM Test Example

The following model is estimated, in which R&D expenditures are determined by

sales and profits.
Arge harcamalarının satışlar ve karlar tarafından belirlendiği aşağıdaki eşitlik tahmin edilmiştir.

Dependent Variable: RD
Method: Least Squares
Sample: 1 18
Included observations: 18
Variable Coefficient Std. Error t-Statistic Prob.
C -502.7258 1208.297 -0.416061 0.6833
SALES 0.058523 0.014910 3.924985 0.0014
PROFITS -0.157794 0.175448 -0.899379 0.3827
R-squared 0.627725
Tahmin edilen eşitlikte hata terimlerinin değişen varyanslı olup olmadıklarınnı belirlemek amacıyla
aşağıdaki testler yapılmıştır.

In order to determine whether the error terms in the estimated equation have
heteroscedasticity, the following tests were performed.
 LM Test Example

BREUSCH PAGAN Testi  i2  1   2 Z i 2  ..................   p Z ip

Dependent Variable: RESID^2
Method: Least Squares
Sample: 1 18
Included observations: 18
Variable Coefficient Std. Error t-Statistic Prob.
C -6686438. 3805819. -1.756898 0.0993
SALES 6.897520 46.96384 0.146869 0.8852
PROFITS 1947.472 552.6161 3.524095 0.0031
R-squared 0.671919 Mean dependent var 8750548.

H 0 :  2   3  0 (Homoscedasticity)
LM  n  R 2j  (2p 1)
H1 :  2   3  0 (Heteroscedasticity) LM  18  0, 6719  12, 0942  (2)
2

 (2)
2
 5,99 LM  12, 0942)   (2)
2
 5,99 Reject H 0
 LM Test Example

GLEJSER TESTİ  i  1  2 Zi 2  ..................   p Zip

Dependent Variable: ABS(RESID)
Method: Least Squares
Sample: 1 18
Included observations: 18
Variable Coefficient Std. Error t-Statistic Prob.
C -403.1392 477.7675 -0.843798 0.4120
SALES 0.005813 0.005896 0.986059 0.3397
PROFITS 0.235742 0.069373 3.398168 0.0040
R-squared 0.731377
 LM Test Example

HARVEY GODFREY TESTİ ln  i2  1   2 Z i 2  ..................   p Z ip

Dependent Variable: LOG(RESID)^2
Method: Least Squares
Sample: 1 18
Included observations: 18
Variable Coefficient Std. Error t-Statistic Prob.
C 27.36089 7.411741 3.691560 0.0102
SALES 8.30E-05 6.35E-05 1.307082 0.2390
PROFITS 0.001395 0.000846 1.648259 0.1504
R-squared 0.653863
Ekonometri II

White Test

Steps:
1- The model is estimated Yi  1   2 X i 2  3 X i 3  ui

2-Residuals are obtained ei  Yi  Yˆi

 Yi  b1  b2 X i 2  b3 X i 3

3- Squared residuals (ei2 ) are calculated.

4- A new auxiliary regression is estimated in which the squares of the
residual terms are the dependent variable, and the explanatory
variables themselves, their squares, and the product of each other are
the explanatory variables.
ei2  1  2 X i 2  3 X i3  4 X i22  5 X i23  6 X i 2 X i3  vi
Ekonometri II

White Test

5- White Test statistic is calculated

White  n  R 2j  (5)
2

Here, 5, which is the degree of freedom of the chi-square

distribution, represents the number of parameters in the
auxiliary regression excluding the constant term.
H 0 :  2   3   4   5   6  0 (Homoscedasticity)
H1 :  2   3   4   5   6  0 (Heteroscedasticity)

Decision Rule: If White   2 reject the Null hypothesis.

 White Testi Example

The main model is determined. The squared residuals from this model are
calculated.

Ana model belirlenir.

Bu modelden elde edilen artık terimlerin kareleri bulunur.

Dependent Variable: Y
Included observations: 18
Variable Coefficient Std. Error t-Statistic Prob.
C -13.95579 991.9935 -0.014068 0.9890
X1 0.012559 0.017997 0.697818 0.4960
X2 0.239844 0.198592 1.207726 0.2459
R-squared 0.524537 Mean dependent var 3056.856
Adjusted R-squared 0.461142 S.D. dependent var 3705.973
S.E. of regression 2720.441 Akaike info criterion 18.80599
Sum squared resid 1.11E+08 Schwarz criterion 18.95438
Log likelihood -166.2539 F-statistic 8.274108
Durbin-Watson stat 3.173945 Prob(F-statistic) 0.003788
 White Test Example

The squares of the residuals is the dependent variable, the variables themselves
(including the constant term), their squares and their products with each other are the
explanatory variables.
Artık terimlerin kareleri bağımlı değişken,
(sabit terim dahil) değişkenlerin kendileri, kareleri ve birbirleri ile çarpımları ayrı ayrı açıklayıcı
değişken.

White Heteroskedasticity Test:

F-statistic 19.41659 Probability 0.000022
Obs*R-squared 16.01986 Probability 0.006788

Test Equation:
Dependent Variable: RESID^2
Included observations: 18
Variable Coefficient Std. Error t-Statistic Prob.
C 695064.0 2652903. 0.262001 0.7978
X1 134.9886 107.7143 1.253210 0.2340
X1^2 -0.002708 0.000790 -3.426825 0.0050
X1*X2 0.050110 0.020746 2.415374 0.0326
X2 -1965.786 1297.839 -1.514661 0.1557
X2^2 -0.116380 0.146636 -0.793662 0.4428
R-squared 0.889992 Mean dependent var 6167333.
Adjusted R-squared 0.844155 S.D. dependent var 13040974
S.E. of regression 5148208. Akaike info criterion 34.00740
Sum squared resid 3.18E+14 Schwarz criterion 34.30419
Log likelihood -300.0666 F-statistic 19.41659
Durbin-Watson stat 2.127495 Prob(F-statistic) 0.000022
 White Test Example
Doç. Dr. Erkan ÖZATA
EKONOMETRİ II

H 0 :  2  3   4  5  6  0 (sabit varyans)
H1 :  2   3   4   5   6  0 (değişen varyans)

2
W= n * R W= Obs*R-squared = 16.01986

52  11,07
n * R2   2 olduğundan sıfır hipotezini reddederiz. Değişen varyanslılık vardır.

We reject the null hypothesis and conclude that there is heteroscedasticity.

Ekonometri II

Goldfeld Quandt Test

The GQ test is an F test applied to large samples.

Yi  1   2 X i  ui

We assume that  i2 is positively related with Xi like the following:

 i2   2 X i2
Here  2 is constant . According to this assumption  i2 , is related with
the square of X variable.
This means that the larger the X values, the larger  i2 will be.
Ekonometri II

Steps of Goldfeld Quandt Test

X values are ordered from smallest to largest. The values of the dependent variable Y corresponding to the X values are
also sorted.

2- C observations corresponding to the middle are discarded. The aim here is to reveal a significant difference between
the observations in the lower group and the upper group.

3- Two models are estimated based on two different data. One with small values of X, the other with large values.

4- RSS1 and RSS2 are calculated

RSS1 : Residual sum of squares obtained from the regression with the small values of X

RSS2 : Residual sum of squares obtained from the regression with large values of X

5- The sample value of the test statistic is calculated

Ekonometri II

Steps of Goldfeld Quandt Test

RSS2 df
GQ  F
RSS1 df

Degrees of freedom (df) :  n  c  k  or n1  k and n2  k

 2 
H 0 :  12   22 (Homoscedasticity)
Hypothesis : H1 :  12   22 (Heteroscedasticity)

Decision : If F  Ftable Reject H0

Goldfeld Quandt Example
 Goldfeld Quandt Example

For the first 13 observations

İLK 13 GÖZLEM İÇİN

Dependent Variable: Y
Method: Least Squares
Sample: 1 13
Included observations: 13
Variable Coefficient Std. Error t-Statistic Prob.
C 3.409429 8.704924 0.391667 0.7028
X 0.696774 0.074366 9.369531 0.0000
R-squared 0.888651 Mean dependent var 83.53846
Adjusted R-squared 0.878528 S.D. dependent var 16.80087
S.E. of regression 5.855582 Akaike info criterion 6.513306
Sum squared resid 377.1663 Schwarz criterion 6.600221
Log likelihood -40.33649 F-statistic 87.78810
Durbin-Watson stat 2.123530 Prob(F-statistic) 0.000001

Y = 3.40942928 + 0.6967741935*X
 Goldfeld Quandt Example

For the last 13 observations

SON 13 GÖZLEM İÇİN

Dependent Variable: Y
Method: Least Squares
Sample: 1 13
Included observations: 13
Variable Coefficient Std. Error t-Statistic Prob.
C -28.02717 30.64214 -0.914661 0.3800
X 0.794137 0.131582 6.035307 0.0001
R-squared 0.768054 Mean dependent var 155.8462
Adjusted R-squared 0.746969 S.D. dependent var 23.49768
S.E. of regression 11.81986 Akaike info criterion 7.918077
Sum squared resid 1536.800 Schwarz criterion 8.004993
Log likelihood -49.46750 F-statistic 36.42493
Durbin-Watson stat 1.476579 Prob(F-statistic) 0.000085

Y = -28.02716873 + 0.7941372736*X
 Goldfeld Quandt Example

RSS2 / sd 1536,8 11
GQ=  GQ  4, 07
RSS1 / sd 377,17 11

F11,11  2,82

H0 : 12   22
H1 :  22  12

GQ> Fc olduğundan H 0 reddedilir.

Hata terimlerinin değişen varyanslı olduğu sonucuna varılır.

As GQ> F table critical value (2,82), we reject the null hypothesis and
conclude that there is heteroscedasticity.
Koenker Bassett (KB) Test
Koenker Bassett (KB) Test
The Method of Generalized Least Squares
The Method of Generalized Least Squares
The Method of Generalized Least Squares
The Method of Generalized Least Squares
Difference Between OLS and GLS
Difference Between OLS and GLS
When the population variance is not known
When the population variance is not known
Plausible Assumptions About Heteroscedasticity Pattern
Plausible Assumptions About Heteroscedasticity Pattern
Plausible Assumptions About Heteroscedasticity Pattern
Plausible Assumptions About Heteroscedasticity Pattern