Question

Explain what it means to have heteroskedastic error terms.

Answer 1

In Statistics, A collection of random variables is heteroskedastic or heteroscedastic if there are sub-populations that have different variabilities from the other sub-populations. The variability can be measured either by variance or any other measure of statistical dispersion. in other words, when using some statisticlal techniques like OLS (ordinary least square), one main assumption is that the error term has a constant variance. Although the error term is assumed to drawn from identical distribution but this is always not true that variance of error term constant.