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

Key assumptions for the OLS model include:

- (A) The error term's expected value is zero.
- (C) The model is linear in its parameters.

Heteroskedasticity and autocorrelation commonly violate OLS assumptions.

Therefore, the correct answer is (d).