Serial correlation occurs when:
A) independent variables are correlated across observations.
B) dependent variables are correlated across observations.
C) error terms are correlated across observations.
D) R-squared is near 1 and the t-statistics are near 0.
E) R-squared is near 0 and the t-statistics are near 1.

Question

Quizplus · Accepted Answer

Serial correlation, also known as autocorrelation, occurs when error terms in a regression model are correlated across observations. This violates the assumption of independent errors and can lead to biased coefficient estimates and incorrect hypothesis tests.

Serial Correlation Occurs When