Consider the following regression model yt 0 1x1t 2x2t KxKt t Show that if Var() Kx2i(K 0) then Var i xi K Discuss the possible relevance of this result in treating a form of heteroscedasticity

Question: Consider the following regression model: yt = 0 + 1x1t + 2x2t + .. + KxKt + t Show that if Var() = Kx2i(K >

Consider the following regression model:
yt = β0 + β1x1t + β2x2t + .. + βKxKt + εt
Show that if
Var(ε) = Kx2i(K > 0)
then
Var [εi/xi] = K
Discuss the possible relevance of this result in treating a form of heteroscedasticity.

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