Heteroscedasticity means unequal scatter. In regression analysis, we talk about heteroscedasticity in the context of the residuals or error term. Specifically, heteroscedasticity is a systematic change in the spread of the residuals over the range of measured values. Heteroscedasticity is a problem because ordinary least squares (OLS) regression assumes that all residuals are drawn from a population that has a constant variance (homoscedasticity).
To satisfy the regression assumptions and be able to trust the results, the residuals should have a constant variance. In this blog post, I show you how to identify heteroscedasticity, explain what produces it, the problems it causes, and work through an example to show you several solutions. [Read more…] about Heteroscedasticity in Regression Analysis