Interview Question: Hetero-What?

Sample Question #38 (econometrics)

What are some of the causes of heteroskedasticity? How do you test for the presence of heteroskedasticity? (Please name at least two tests.) Finally, what are some of the techniques for dealing with heteroskedasticity?

(Comment: questions related to heteroskedasticity [alternatively spelled as heteroscedasticity in Europe] are common during quant interviews – I was asked about it by three different interviewers when I interviewed at Goldman Sachs for a summer internship almost a decade ago)

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