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Serial Correlation (WEDC)

October 20, 2015

What is it?

Residuals are correlated

Effect?

Coefficients are consistent. Standard errors are underestimated. Too many Type I errors (positive correlation).

Detection?

Durbin-Watson test ≈ 2(1-r)

Correction?

Use the Hansen method to adjust standard errors

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From → Quant

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