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A portfolio is modeled as follows:
Yi=α+βX1i+ϵiY_i = \alpha + \beta X_{1i} + \epsilon_iYi=α+βX1i+ϵi
The residuals are computed as follows:
ϵ^i=Yi−α^−β^X1i\hat{\epsilon}_i = Y_i - \hat{\alpha} - \hat{\beta}X_{1i}ϵ^i=Yi−α^−β^X1i
Which of the following correctly depicts the second step in the White test for the portfolio?
A
ϵ^i2=γ0+γ1X1i+γ2X1i2+ηi\hat{\epsilon}_i^2 = \gamma_0 + \gamma_1 X_{1i} + \gamma_2 X_{1i}^2 + \eta_iϵ^i2=γ0+γ1X1i+γ2X1i2+ηi_
B
ϵ^i2=γ1X1i+γ2X1i2+ηi\hat{\epsilon}_i^2 = \gamma_1 X_{1i} + \gamma_2 X_{1i}^2 + \eta_iϵ^i2=γ1X1i+γ2X1i2+ηi
C
ϵ^i2=γ0+γ1X1i+ηi\hat{\epsilon}_i^2 = \gamma_0 + \gamma_1 X_{1i} + \eta_iϵ^i2=γ0+γ1X1i+ηi_
D
ϵ^i2=γ0+γ1X1i2+ηi\hat{\epsilon}_i^2 = \gamma_0 + \gamma_1 X_{1i}^2 + \eta_iϵ^i2=γ0+γ1X1i2+ηi_
