Question

Which of the following statements are valid assumptions of the Ordinary Least Squares regression model?
(A) Expected value of the error term is zero
(B) Heteroskedasticity
(C) The model is linear in parameters
(D) Autocorrelation
Choose the correct answer from the options given below:

• (A) and (D) only
• (B) and (C) only
• (C) and (D) only
• (A) and (C) only

Hint:

OLS regression assumes linearity, zero mean error term, and homoscedasticity (constant variance of errors).

Answer 1

The Correct Option is D

The valid assumptions for the OLS model are:

- (A) The error term has an expected value of zero.
- (C) The model is linear in parameters.

Heteroskedasticity and autocorrelation are issues that violate the assumptions of OLS.

Thus, the correct answer is (d).