Homoskedastic

AAA

DEFINITION of 'Homoskedastic'

A statistics term indicating that the variance of the errors over the sample are similar. This type of error structure is most often assumed in statistics, but is not always the case when regression is done. If the variance of the errors around the line of best fit varies much, it will not show a pattern or tendency.

INVESTOPEDIA EXPLAINS 'Homoskedastic'

For example, in a homoskedastic sample, the variance of errors will not increase when the variables increase.

Suppose you took a sample population of people, some with very high incomes and others with very low incomes. For the variance to be considered homoskedastic, the magnitude of the errors for each term compared to the line of best fit would need to be about the same for each person, regardless of the magnitude of his or her income. In reality this isn't likely to be the case very often.

RELATED TERMS
  1. Regression

    A statistical measure that attempts to determine the strength ...
  2. Heteroskedastic

    A measure in statistics that refers to the variance of errors ...
  3. Rescaled Range Analysis

    A statistical analysis of a time-series of financial data that ...
  4. Sampling Error

    A statistical error to which an analyst exposes a model simply ...
  5. Absolute Frequency

    A statistical term describing the total number of trials or observations ...
  6. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
Related Articles
  1. The P/E Ratio: A Good Market-Timing ...
    Budgeting

    The P/E Ratio: A Good Market-Timing ...

  2. The Gann Studies
    Technical Indicators

    The Gann Studies

  3. What is the average salary for an accountant?
    Personal Finance

    What is the average salary for an accountant?

  4. Lognormal and Normal Distribution
    Fundamental Analysis

    Lognormal and Normal Distribution

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center