Hetrosadastesity

Homosadastesity is also one of the assumption of Linear Regression Model. homo means equal and scedasticity means spread or variance. Homoscedasticity thus refers to as equal or same variances. ===> E(ui) = ; remains constant while i varies

Consequence Hetrosadastesity
1. Due TO hetrosadastesity, variances of the coefficients (i)are larger, and consequently, their standard errors and confidence interval are large, while t ratios are consequently small and insignificant. 2) Estimated results are misleading. 3) OLS estimators are no longer efficient.

Detection Hetrosadastesity
Tests use for detection of Hetrosadastesity: Park Test: Run a usual regression, like: lnY = 0 + 1lnXi + i Obtain residuals ei and make them squared, run regression of the following form: Lne2i = 0 + 1lnXi + i If 1 happens to be statistically significant, it will indicate the existence of the problems of heteroscedasticity. Lets do the Park test for evaluating our Job satisfaction and organizational justice case for checking existence of heteroscadasticity problem.

Detection Hetrosadastesity
Park Test: (Cont) Convert data on all dependent and independent variables JS, DJ,PJ, IJ, INJ and AEE into log using TRANSFORM and COMPUTE VARIABLE commands in SPSS; let the newly log-variables have new names LJS, LDJ,LPJ, LIJ, LINJ and LAEE.

Detection Hetrosadastesity
Park Test: (Cont) After Converting data into log regress the model as follows: lnLJS = 0 + 1lnDJ + 2lnPJ + 3lnIJ + 4lnIN + 5lnAEE + i Obtain residuals using additional SPSS commands: ANALYZEREGRESSIONLINEARSAVERESIDU ALSUNSTANDARDIZEDCONTINUEOK

Detection Hetrosadastesity
Park Test: (Cont) The command in previous slide will estimate residuals and put those in the last column of the data file under name RES_1. Make this variable square (as we need Lne2i), using TRANSFORM and COMPUTE commands. you can run regression Lne2i = 0 + 1lnDJ + 2lnPJ + 3lnIJ + 4lnIN + 5lnAEE + i

Detection Hetrosadastesity
Park Test: (Cont)
Unstandardized Coefficients
Model B 1 Constant LDJ LPJ -.019 .245 -.020 Std.Error .013 .003 .003 .412 -.042

Stand. Coefficients
Beta t -1.478 74.212 -6.967 Sig. .141 .000 .000

LIJ
LINJ LAEE

.109
.477 -.131

.003
.004 .003

.169
.643 -.168

35.373
116.293 -41.693

.000
.000 .000

Detection Hetrosadastesity
Park Test: (Cont) Result interpretation of Park Test: All the coefficients (LDJ, LPJ, LIJ, LINJ & LAEE) are statistically significant, suggesting the possibility of high level of heterosedasticity problem.

Detection Hetrosadastesity
Goldfeld-Quant Test: The Goldfeld-Quant test suggests ordering or rank observations according to the values of Xi, beginning with the lowest Xi value. Then some central observations are omitted in a way that the remaining observations are divided into two equal groups.

Detection Hetrosadastesity
Goldfeld-Quant Test: (Cont) These two data groups are used for running two separate regressions, and residual sum of squares (RSS) are obtained; these RSSs (RSS1 & RSS2) are then used to compute Goldfeld-Quant F test, namely: F = RSS2/df RSS1/df If the F is found significant (F-calculated > F-tabulated) the problem of heteroscedasticity is likely to exist.