The t statistic on returnt-1 is about -5.5, indicating strong evidence of heteroskedasticity.
Because the coefficient on returnt-1 is negative, we have the interesting finding that volatility in stock returns is lower when the previous return was high, and vice versa. Therefore, we have found what is common in many financial studies: the expected value of stock returns does not depend on past returns, but the variance of returns does.
(i) How would you compute the White test for heteroskedasticity in equation (a)?
residuals
return