What is "heteroscedasticity"

n. (context statistics English) The property of a series of random variables of '''not''' every variable having the same finite variance

In statistics, a collection of random variables is heteroscedastic (or 'heteroskedastic'; from Ancient Greek “different” and “dispersion”) if there are sub-populations that have different variabilities from others. Here "variability" could be quantified by the variance or any other measure of statistical dispersion. Thus heteroscedasticity is the absence of homoscedasticity.

The existence of heteroscedasticity is a major concern in the application of regression analysis, including the analysis of variance, as it can invalidate statistical tests of significance that assume that the modelling errors are uncorrelated and uniform—hence that their variances do not vary with the effects being modeled. For instance, while the ordinary least squares estimator is still unbiased in the presence of heteroscedasticity, it is inefficient because the true variance and covariance are underestimated. Similarly, in testing for differences between sub-populations using a location test, some standard tests assume that variances within groups are equal.

Because heteroscedasticity concerns expectations of the second moment of the errors, its presence is referred to as misspecification of the second order.