GLS and OLS Assumptions Quiz

GLS is primarily used when which OLS assumption is violated?

• Linearity

• Homoskedasticity

• Independence of variables

• Random sampling

Which of the following is TRUE about GLS?

• It assumes homoskedastic errors

• It ignores correlation among errors

• It corrects for heteroskedasticity and autocorrelation

• It is not used in finance

What does the matrix Ω represent in GLS?

• Coefficient matrix

• Covariance matrix of regressors

• Variance-covariance matrix of errors

• Transformation matrix

In GLS, when Ω = σ²I, the estimator reduces to:

• FGLS

• WLS

• OLS

• Maximum Likelihood

Which is a key advantage of GLS over OLS?

• Requires fewer variables

• More efficient under heteroskedasticity

• Doesn’t need variance estimates

• Easier to implement

GLS is the Best Linear Unbiased Estimator (BLUE) under:

• No correlation in errors

• Correct Ω and heteroskedasticity

• Constant variance

• Perfect multicollinearity

What kind of transformation is applied in GLS estimation?

• Fourier transformation

• Matrix decomposition

• Ω⁻¹/² transformation

• Polynomial transformation

Which is a requirement for Feasible GLS (FGLS)?

• Known Ω

• Estimated Ω

• No error

• Normal data

In GLS, what is the formula for the estimator?

• (X'X)⁻¹X'y

• (X'Ω⁻¹X)⁻¹X'Ω⁻¹y

• X'X⁻¹

• X'Ωy

True or False: GLS provides unbiased estimates under classical assumptions.

• True

• False