Question

Theory Question 3:
Suppose you are testing a regression model for the presence of heteroskedasticity and the p-value is 0.00. Provide the null and alternative hypotheses, the rejection rule and interpret the result.
Suppose you are testing for serial correlation and using the Serial Correlation LM text where the p-value is 0.8415. Provide the null and alternative hypotheses, the rejection rule and interpret the result.

Answer 1

Null hypothesis H0: There is no presence of heteroskedasticity in the regression model.

Alternative hypothesis Ha: There is presence of heteroskedasticity in the regression model.

Rejection rule: p-value < 0.05

Since p-value is less than 0.05 significance level, we reject null hypothesis H0 and conclude that there is significant evidence of presence of heteroskedasticity in the regression model.

Null hypothesis H0: There is no serial correlation in the regression model.

Alternative hypothesis Ha: There is presence of serial correlation in the regression model.

Rejection rule: p-value < 0.05

Since p-value is greater than 0.05 significance level, we fail to reject null hypothesis H0 and conclude that there is no significant evidence of presence of serial correlation in the regression model.