Model Misspecification
Free CFA Level II lesson in Quantitative Methods. 13 min read, ~1,875 words.
Heteroscedasticity and serial correlation do NOT bias coefficients: they corrupt standard errors. Fix with robust (White) or HAC (Newey-West) standard errors. Multicollinearity inflates standard errors without biasing coefficients. No SE correction exists, drop or combine variables. Omitted variable bias DOES bias coefficients. Direction = (sign of omitted coeff) x (sign...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- model misspecification
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