Which of the following violates the assumptions of regression analysis?
A) The error term is normally distributed.
B) The error term has a zero mean.
C) The error term is correlated with an explanatory variable.
D) The error term has a constant variance.

Question

Quizplus · Accepted Answer

Correlation between the error term and an explanatory variable violates the assumption of exogeneity, which states that the explanatory variables must be uncorrelated with the error term. This can lead to biased coefficient estimates and unreliable inference. The other options (A, B, D) are assumptions of regression analysis that should be met for valid inference.

Which of the Following Violates the Assumptions of Regression Analysis